British Prime Minister Andy Burnham has announced plans to abolish Value Added Tax (VAT) on household electricity bills from October, reducing the current rate from 5 per cent to zero as part of his new government’s efforts to ease the cost-of-living pressures facing households.
The proposal, unveiled just days after Burnham assumed office and appointed his cabinet, is among the first major economic measures of his administration.
According to Downing Street, the tax cut will be funded through the cancellation of the digital ID programme introduced under the previous administration of former Prime Minister Keir Starmer.
The government said ending the initiative would free up resources needed to finance the VAT reduction and provide immediate relief to millions of households struggling with high energy costs.
The funding strategy has, however, come under scrutiny from opposition figures, who questioned whether cancelling the digital ID scheme would generate enough savings to offset the loss of tax revenue.
Former Treasury minister Darren Jones argued that the programme had never been fully funded and therefore could not deliver the level of savings claimed by the government.
“The new government will have to set out how it will pay for its new policies at the Budget,” Jones said, maintaining that the digital ID initiative was itself an unfunded programme.
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His remarks have fuelled debate over the fiscal sustainability of the proposed VAT reduction and whether alternative funding sources may be required.
Responding to the criticism, Business Secretary Jonathan Reynolds defended the government’s position during an interview with the BBC, insisting that the decision to discontinue the digital ID programme was a legitimate policy choice.
Asked whether any concrete savings had been identified, Reynolds said they “would have had to have been,” maintaining that the government was confident in its funding strategy.
Officials said further details on the implementation of the VAT cut and its financing would be outlined in the coming months.
The government believes removing VAT from household electricity bills will help reduce energy costs at a time when many families continue to face financial pressure from inflation and higher living expenses.
Energy analysts say the measure, if implemented, could provide direct savings for consumers, although its overall impact will depend on prevailing electricity prices and household consumption levels.
Economists, however, noted that while tax reductions can provide short-term relief, the government will also need to demonstrate how it intends to balance the fiscal implications of lower tax revenues.
The announcement represents one of the first significant policy decisions of Burnham’s administration as it begins setting out its economic agenda.
Later on Tuesday, the Prime Minister is expected to chair the inaugural meeting of his newly appointed cabinet following his swearing-in.
Among the key appointments, John Healey has been named Chancellor, Ed Miliband will serve as Foreign Secretary, while Wes Streeting has been appointed Defence Secretary.
Angela Rayner has retained her role as Housing Secretary, while Shabana Mahmood continues as Home Secretary.
The cabinet meeting is expected to focus on the government’s immediate legislative agenda, economic priorities and preparations for the upcoming Budget, where ministers are expected to provide further details on financing key campaign promises, including the proposed removal of VAT on electricity bills.
Burnham officially assumed office as Prime Minister after succeeding Keir Starmer, following Starmer’s resignation to King Charles III at Buckingham Palace.
In his first address outside 10 Downing Street, Burnham pledged to prioritise measures aimed at tackling Britain’s cost-of-living crisis and restoring economic stability.
He also announced plans to unveil a 10-year national development strategy later this year, saying his administration would focus on rebuilding public confidence and strengthening the country’s economic foundations.
“Britain needs to show the world that we can regain our stability once again,” Burnham said. “We have not been good enough, and we need to be better.”