When Andy Burnham walked into his first cabinet meeting as prime minister, he told his top team he wanted to lead a "cost of living government" and give people a "sense that help is coming." Within days he had announced a VAT cut on household energy bills, a £2 cap on single bus fares, and a business rates discount for pubs and clubs—three policies designed to ease the financial pressure on millions of households. But the speed of the announcements has also sparked rows over how they will be paid for, and whether the new government has the experience to deliver.
The basics are straightforward. Burnham, who succeeded Sir Keir Starmer after a Labour leadership contest, has made tackling living costs the centrepiece of his first weeks in office. His first major policy was a VAT cut on household electricity, reducing the rate from 5% to 0% from October 2026 for the rest of the financial year. The Treasury estimates this will cost around £850 million. To pay for it, Burnham has scrapped the previous government's digital ID scheme, which had £1.8 billion earmarked for rollout over the next three years. He also announced a £2 cap on single bus fares in England from 1 January 2027, backed by £400 million in additional funding, and a business rates discount for nearly 32,000 hospitality venues that will save a typical pub about £1,100 a year.
“Andy Burnham's new government announces VAT cut on energy, £2 bus fare cap, and business rates cut, facing rows over funding and cabinet experience.”
These policies have deep roots in the cost of living crisis that has squeezed UK households since 2021. Energy prices soared after Russia's invasion of Ukraine, while bus fares and business rates have been a persistent burden for many. The previous Conservative government introduced a temporary £2 bus fare cap in 2023, but it was due to expire. Burnham's cap is intended to make it permanent for at least a year. The digital ID scheme was a pet project of Starmer's administration, but critics said it was unfunded—the budget watchdog had noted the money was supposed to come from existing departmental budgets. By redirecting those savings, Burnham argues he can fund the VAT cut without adding to borrowing.
For UK readers, the impact is immediate and practical. If you heat your home with electricity, your bills will fall slightly from October—the VAT cut removes the 5% levy. If you take the bus, your single fare will be capped at £2 from January, saving regular commuters hundreds of pounds a year. And if you run or visit a pub, the business rates cut could keep your local open. But there are also warnings. The Conservative leader Kemi Badenoch has called the cabinet "terrifying," pointing to a lack of business experience—most members come from charities, trade unions or Labour MP backgrounds. She also criticised Burnham for closing the science and technology department, leaving just one cabinet minister responsible for AI, which she described as a security risk. Meanwhile, rural campaigners have warned that a £2 bus cap means nothing if there are no bus routes to use—47 million people live outside metropolitan areas, and they need services as well as price caps.
Q: How will the VAT cut on energy bills be funded? The government says the £850 million cost over the rest of the financial year will come from £1.8 billion previously earmarked for the digital ID scheme. That money was due to be found from existing departmental budgets, so Burnham is redirecting those "savings" to cover the tax cut. Critics, including the former chief secretary to the Treasury Darren Jones and Conservative shadow chancellor Sir Mel Stride, say the digital ID scheme was itself unfunded, so the sums do not add up without further cuts or borrowing.
Q: What is the £2 bus fare cap and when does it start? The cap limits single bus fares to £2 on most local routes in England, effective from 1 January 2027 for the rest of the year. It is supported by £400 million in new funding. The previous £2 cap, introduced under the Conservatives, led to an estimated 30 million extra bus journeys in 10 months. The new cap is intended to help people with the cost of living while supporting local economies. Wales, Scotland and Northern Ireland can decide independently whether to introduce similar schemes using extra funding from Westminster.
Q: Why is there controversy about the cabinet's experience? Kemi Badenoch has said the new cabinet lacks business and technology experience. She pointed out that the science and technology department has been closed, leaving just one minister in cabinet responsible for AI. She also noted that most cabinet members come from backgrounds in the third sector, trade unions or as Labour staffers, and argued the government needs people from a "broader spectrum" to turn the country around. Energy Secretary Miatta Fahnbulleh, a Burnham ally, has also been criticised for setting a net zero by 2030 target that Badenoch calls "just slogans."
What happens next depends on how quickly the government can pass the necessary legislation and implement the changes. The VAT cut on electricity is set for October 2026. The bus fare cap begins in January 2027. In the meantime, Burnham will face pressure to show how his cost of living policies are funded without destabilising the public finances. The opposition will scrutinise every announcement, and rural communities will push for more than just price caps—they want the buses to actually run. With a reshuffled cabinet and a prime minister who has promised to be different from his predecessors, the next few weeks will test whether this is a genuine new direction or just another first-day promise.