Prime Minister Andy Burnham has announced a tax cut on household electricity bills, aiming to “bring back hope” for families struggling with the cost of living. The Government confirmed on Tuesday that VAT will be removed from domestic electricity bills starting October 1, with the measure funded by savings from the cancelled digital ID programme.
Details of the Tax Cut
The removal of VAT is expected to reduce the annual Ofgem price cap by approximately £45 from October. Suppliers are anticipated to pass these savings on to their customers, providing direct financial relief. Mr Burnham stated: “Westminster has not been working for people for too long, with families struggling with the cost of living. That needs to change. I said I wanted to give people breathing space, and that’s what I’m announcing on my second day as Prime Minister. We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope.”
Funding and Economic Impact
Chancellor John Healey explained that the measure is funded this year from cancelling the Digital ID programme. He said: “For too long, too many people have struggled with the cost of living. Today’s energy tax cut will give families some breathing room on bills, and provide some reassurance this winter. This measure is funded this year from cancelling the Digital ID programme, and it will help bring down inflation while supporting households in every postcode.”
Immediate Relief for Households
The announcement comes as part of the new government's early actions to address the cost-of-living crisis. By cutting taxes on energy bills, the government aims to reduce financial pressure on families across the country. The savings from the cancelled digital ID programme, which was scrapped due to concerns over privacy and cost, provide a direct source of funding for the tax cut without adding to public debt.
This policy is expected to benefit millions of households, with the reduction in VAT translating into lower monthly electricity costs. The government has urged suppliers to ensure that the full benefit of the tax cut is passed on to consumers, and it will monitor compliance closely.
