On his first full day as prime minister, Andy Burnham announced a VAT cut on household electricity bills from 5% to zero, effective from 1 October. The move, which will save a typical household around £45 a year, was billed as the first of a series of cost-of-living measures. The reduction will last six months, covering the winter months when bills are highest, and will apply in England, Scotland and Wales. Northern Ireland, where EU rules still apply post-Brexit, will receive equivalent funding from the government for its own measures.
The cut will be funded by savings from the cancellation of the digital ID programme, which was due to cost £1.8bn over three years. The government estimates the VAT cut will cost £850m this financial year. Jonathan Reynolds, the new business secretary, said the measure would give people “breathing space” and was funded until the end of the financial year in March 2027. “Any changes beyond that would have to be announced in the next Budget,” he told the BBC’s Today programme. Suppliers have been told to pass the reduction on to all household customers, including those on fixed tariffs.
“Andy Burnham slashes VAT on electricity to zero from 1 October, saving £45 per household, but faces criticism over funding.”
But the announcement drew immediate criticism. Darren Jones, who was sacked as chief secretary to the prime minister on Monday, called the cut “good” but said “the government will have to set out how it will pay for its new policies at the budget”. Writing on X, he accused the government of announcing an unfunded tax cut. Conservative shadow chancellor Mel Stride was blunter: “The cuts to the Digital ID card budget are not real because the money was never provided in the first place. We are only one day in and already it is smoke and mirrors on the public finances.”
The Institute for Fiscal Studies also questioned the targeting of the cut. It noted that since the start of the Iran war, gas prices had risen 24% compared with 5% for electricity, meaning the policy did little to help households most affected by the conflict. Meanwhile, the latest prediction from Cornwall Insight suggests the Ofgem price cap could rise by 2% in October, partly offsetting the saving for those not on fixed-rate tariffs. Households with high electricity usage, including those running medical equipment, will benefit most – but the cut does nothing for the millions who heat their homes with gas.