Andy Burnham has announced a VAT cut on household electricity bills – but quickly distanced himself from speculation that the tax-free personal allowance would be increased, as he sought to project fiscal discipline in his first days as prime minister. The VAT cut, effective from 1 October, will save a typical household about £45 a year, and will be funded by scrapping Sir Keir Starmer's digital ID scheme. The move has already been disputed by former chief secretary Darren Jones, who said the ID programme was unfunded. The prime minister's spokesman insisted it would be covered by redirecting savings identified by departments.
Over the weekend, Burnham told the Times that frustration about the £12,570 personal allowance – frozen since 2021 – was "lodged in my mind" after hearing voters in the Makerfield by-election. But on Monday, he told reporters any change would be "looked at" in the budget, while conceding it would be "difficult given the financial circumstances". Those close to him later confirmed that altering the allowance was not part of his initial cost-of-living plan. The Institute for Fiscal Studies has estimated unfreezing the threshold could cost £8.5-9bn a year.
“Burnham pulls back on tax-free allowance rise, announces VAT cut funded by scrapping digital ID scheme.”
At his first cabinet meeting, Burnham said: "We've got to show fiscal discipline. We've got to show that our commitment to the fiscal rules is real and we're prepared to make difficult decisions in relation to that." He has committed to Labour's 2024 manifesto, which ruled out increasing the basic, higher, or additional rates of income tax – barring a rise in the top rate to offset any increase in the allowance.
Meanwhile, Ireland's deputy premier Simon Harris signalled support for closer UK-EU ties under the new prime minister, saying Burnham "knows Ireland well, and Ireland knows him well." The mixed signals on tax – a manifesto promise not to raise income tax rates, but no commitment to ease the frozen allowance – leave Burnham navigating between voter anger and a tight fiscal straitjacket.
