Burnham cuts VAT on electricity bills in first cost-of-living move

Prime Minister Andy Burnham announced on Tuesday the removal of VAT from domestic electricity bills for one year, marking his first major cost-of-living intervention since taking office. The cut, effective from 1 October, is expected to reduce the annual Ofgem price cap by approximately £45, with suppliers required to pass the savings on to consumers.

Funding and political context

The tax relief will be funded by scrapping the Digital ID programme, according to newly appointed Chancellor John Healey. Speaking after the announcement, Healey 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.' The decision to cancel the Digital ID initiative represents a swift policy reversal, underscoring the new government's focus on immediate financial pressures over long-term digital infrastructure projects.

Burnham's early message

The prime minister, who was elected just days ago, framed the move as a departure from years of political stagnation. In a statement, Burnham declared, '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.' The announcement came a day after his inaugural speech outside No 10, where he promised to 'bring back hope' to Britain and introduced Healey as chancellor in a surprise appointment.

Implications and next steps

The VAT cut is seen as a down payment on broader cost-of-living relief. Analysts note that while £45 off annual bills offers modest help, it signals the government's willingness to act quickly on energy costs ahead of winter. Burnham’s team is expected to unveil further measures in the coming weeks, potentially including additional support for low-income households and reforms to the energy market. For now, the cancellation of the Digital ID programme provides a clear funding source, but critics question the long-term viability of relying on programme cancellations to sustain tax cuts. The prime minister's early actions set the stage for a defining policy agenda centered on affordability and public trust.