Just hours after walking through the door of Number 10, new Prime Minister Andy Burnham announced he would scrap VAT on household electricity bills from 1 October. But within minutes, a former senior minister from his own party publicly accused him of making an “unfunded” pledge – opening up a row that threatens to define the early days of his premiership.
The policy is straightforward: removing the 5% VAT from domestic electricity bills. The government says it will save families around £45 off the energy price cap this winter, providing what Burnham calls “breathing room” amid the cost of living crisis. Chancellor John Healey, appointed in Burnham’s surprise reshuffle, said the cut is “funded this year from cancelling the Digital ID programme” – a scheme introduced by the previous government to create digital identity cards.
“Explaining Andy Burnham's first policy as PM and the row over funding.”
But the attack came from Darren Jones, who served as Chief Secretary to the Prime Minister under Keir Starmer and was the minister in charge of the Digital ID project. In a post on X, Jones wrote: “Good news that VAT will be cut on electricity bills… But the DigitalID program was unfunded. The government will have to set out how it will pay for its new policies at the budget.” The Office for Budget Responsibility had previously noted that the cost of digital ID cards – £0.6bn annually – had “no specific funding” identified. Jones’s intervention was quickly shared by opposition MPs, including Shadow Energy Secretary Claire Coutinho, who claimed the move meant “more tax rises are coming in the Budget”.
Burnham became prime minister on 20 July 2026 after Keir Starmer resigned, saying “my work is done”. Starmer had led Labour to a landslide victory in 2024 but faced internal unrest. Burnham, formerly Mayor of Greater Manchester, won the leadership and immediately set about reshaping the cabinet. He sacked Starmer loyalists including Rachel Reeves, David Lammy and Steve Reed, and appointed Ed Miliband as foreign secretary, Wes Streeting as defence secretary, and Angela Rayner as housing secretary. The reshuffle continued late into the night, with one minibus of ministerial hopefuls still waiting outside Downing Street at 10pm.
For UK readers, the VAT cut is a direct attempt to ease pressure on household budgets. Energy bills have risen sharply, partly due to conflict in the Middle East, and the cut is expected to reduce the October price cap increase. But the funding row raises questions about whether other taxes will rise in the upcoming Budget. Business Secretary Jonathan Reynolds said the measure would stay in place for the rest of the financial year, with longer-term decisions deferred to the Budget.
Q: Will the VAT cut on electricity bills actually save me money? Yes, the government says removing 5% VAT will cut around £45 from the average household’s annual energy bill. The reduction takes effect from 1 October and will be reflected in the energy price cap.
Q: Why is the Digital ID programme controversial? The programme, which would have introduced digital identity cards, was criticised because the Office for Budget Responsibility said no specific funding had been identified for its £0.6bn annual cost. The new government says cancelling it pays for the VAT cut, but the former minister in charge called that claim into question.
Q: Who is in Andy Burnham’s new cabinet? Key appointments include John Healey as chancellor, Ed Miliband as foreign secretary, Wes Streeting as defence secretary, Angela Rayner as housing secretary, and Jonathan Reynolds as business secretary. Sir Chris Bryant replaced Hilary Benn as Northern Ireland secretary.
What happens next: Burnham will hold his first cabinet meeting and is expected to announce further policies this week, including a reported 20% cut in business rates for hospitality. The budget – yet to be scheduled – will be the moment the government must set out how it funds its promises. Meanwhile, the fallout from the reshuffle, particularly the sacking of experienced ministers, is likely to continue.