In one of his first moves as Prime Minister, Andy Burnham has announced that VAT will be cut from household electricity bills, part of his pledge to help with the cost of living. The VAT on domestic electricity bills will be reduced from 5% to zero from 1 October, which the government says will save a typical household about £45 a year. Larger households are likely to save more as they use more electricity.
The announcement came during Burnham's first speech as prime minister, in which he promised to give people more "breathing space" to help with their finances. He also pledged a £2 bus fare cap in England. Cost of living is a key issue for the new PM. He has previously said many people can't go out for a pint on a Friday, can't take the kids out, and can't go on holiday owing to the pressure on their finances.
“Burnham cuts VAT on electricity bills from 5% to zero from October, saving typical household £45 a year.”
But easing that pressure hasn't been easy for recent governments. The previous administration under Sir Keir Starmer and then-chancellor Rachel Reeves removed £150 from a typical annual domestic energy bill in April by cutting some levies and moving others onto taxation, only for bills to soon go up again due to the impact of the US-Israeli strikes on Iran. "A more volatile world is a more expensive world," says Adam French of the financial information service Moneyfacts.
Cutting VAT is a relatively basic tool to reduce energy bills, but the cost of energy is still set primarily by the wholesale cost of gas—something largely beyond a government's control. Labour's much-debated general election promise to cut household energy bills by £300 by 2030 remains under close scrutiny.
In Downing Street on Monday, Burnham said he would "bring essentials under public control" to make them more affordable. One option, championed by charities and the regulator, is the introduction of a social tariff offering discounted bills to the most vulnerable, paid through higher bills or taxes from those who are better off.
His new chancellor, John Healey, will be the one who has to deliver any changes and outline how to pay for them. If Burnham plans more support in the form of transport costs and allowing people to earn more before being taxed, and makes care and somewhere to live more affordable, he'll face tough choices on funding those moves and managing the trade-offs. As Alan Vallance writes in City A.M., businesses understand that no prime minister can—and the goodwill a new government starts with is already a diminishing return.