Britain’s new Prime Minister Andy Burnham(Image: James Veysey/Shutterstock)
Andy Burnham has announced VAT on electricity bills will be removed in one of his first acts as Prime Minister.The new PM, who promised breathing space on the cost of living in his first speech from Downing Street, said the move is expected to knock £45 off the average bill.
Downing Street said the new measure – estimated to cost £850 million in 2026-27 – will be funded by savings from the scrapped digital ID programme.
Mr Burnham said: “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.”
The Government said on Tuesday it would remove VAT from domestic electricity bills from October 1, with the next price cap announcement in late August.
The £45 off the average bill is on top of the £150 removed by Keir Starmer’s government in the Budget last year – although that ended up being slightly less in practice as other costs contributing to the price cap increased.
Small businesses who qualify for the domestic energy VAT relief, charities, and residential care homes eligible for the reduce rate will also see a cut on their bills.
Newly appointed Chancellor John Healey MP 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.”
But within hours Darren Jones, who was sacked as Chief Secretary to the Treasury, cast doubt on how the policy would be paid for by the Burnham government.
While welcoming the move, the ex-Cabinet minister, who led work on Starmer’s Digital ID project, said: “The DigitalID program was unfunded. The government will have to set out how it will pay for its new policies at the Budget.”
It comes as Mr Burnham prepares to assemble the new-look Cabinet for the first time on Tuesday morning after culling top ministers from the Starmer-era, including Chancellor Rachel Reeves, deputy PM David Lammy and Business Secretary Peter Kyle.
The new PM will also continue with the government’s reshuffle in the ministerial ranks.
The new Labour leader said he would act urgently to give people “breathing space” on the cost of living as he vowed his arrival would be a “circuit breaker” moment with a new political and economic model to sweep away the damage done by Margaret Thatcher that communities have struggled to recover from.
“I know people at home are fed up with politics,” he said. “I hear you and I want to be honest with you – we have not been good enough, and we need to be better. We will be.”
End Fuel Poverty Coalition’s Simon Francis 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 weather-payments-2019-what-13874235>Cold Weather Payments and an energy debt relief scheme.
“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 homegrown renewables and more energy efficient homes.”