Andy Burnham’s decision to axe VAT from electricity bills has sparked a red-on-red funding row with a former minister.
From October 1 electricity bills will be VAT free, saving households about £45 a year as part of the new Prime Minister’s promise to help ease cost-of-living pressures.
But Darren Jones, a key ally of former prime minister Sir Keir Starmer who was sacked from the Cabinet by Mr Burnham, said the policy was “unfunded”.
The Government said the electricity bill VAT cut would be paid for in part by scrapping Sir Keir’s digital ID project, which had been estimated to cost about £600 million a year over three years.
But that falls short of the estimated £850 million hit to tax revenues from the VAT cut, and funding for digital ID was meant to have come from unidentified Whitehall savings.
Mr Jones, who was the minister in charge of the digital ID scheme, said in a post on X: “Good news that VAT will be cut on electricity bills. It’s a simple way for families to save a few quid, and to mechanically help to keep inflation that little bit lower.
“But the DigitalID program was unfunded.
Darren Jones (Image: Getty)
“The government will have to set out how it will pay for its new policies at the budget.”
His public criticism is a sign that Mr Burnham’s premiership could face problems from Starmer loyalists who were purged from Government in a brutal bloodbath on Monday.
Mr Burnham appeared to use his first new-look Cabinet meeting on Tuesday to hit back with a subtle jibe.
He vowed to always “show how we’re going to pay” for policies to help hard-pressed people.
Mr Burnham told the Cabinet that they needed to examine “all possible ways” to help families struggling with high costs.
Downing Street has insisted Andy Burnham’s plan to cut VAT from electricity bills is fully funded.
The Prime Minister’s official spokesman said: “It’s fully funded and will come into effect from October the first, and it applies and is funded for this financial year.”
The Government previously said the £1.8 billion cost of the digital ID scheme over three years had been “scored” by the Office for Budget Responsibility, meaning the money would have had to be found.
The spokesman was asked about the scoring of the digital ID programme and which funding is to be shifted from it for the VAT cut, as the Office for Budget Responsibility previously said that money for digital ID still needed to be found.
Put to him that the cut was being funded through unidentified savings, he said: “What we’re doing is we’re funding this through the cancellation of the digital ID programme.
“Departments were going to have to fund the Digital ID programme through their existing budget reprioritisation.
“Departments will now direct these savings towards this.”
Chancellor John Healey, who resigned from Sir Keir’s government in protest at funding for the military, warned his colleagues that “we’ve got some big challenges” ahead and that they needed to look closely at their departmental budgets as they refocus spending.
He said the move to reduce VAT on electricity bills “doesn’t solve the cost of living, but it does indicate that we’re offering them help, we’re offering them hope, but we’re only doing that because of a reprioritisation”.
Martin Lewis, founder of MoneySavingExpert, said the VAT cut would have little impact.
“This is a good totemic step and very welcomed,” he said. “Yet in practice people won’t feel much benefit.”
Simon Francis, coordinator of the End Fuel Poverty Coalition, said: “Removing VAT from electricity bills is a positive statement of intent by the new administration.
“But it does not address the scale of what households are facing, with millions still left paying an unaffordable share of their income on energy and record levels of energy debt built up over successive winters of high bills.
“The Prime Minister’s next move must be to go even further on bringing down the cost of energy and bringing in increased levels of targeted support for those who need it most: an enhanced Warm Home Discount, reformed Cold Weather Payments and an energy debt relief scheme.”
He added: “This breathing space is also not a cure. The only way to bring bills down for good is to change how they are set.
“That means breaking the link between gas and electricity prices, tackling excess profits in the energy industry and ending our exposure to volatile fossil fuel markets through home-grown renewables and more energy efficient homes.”