Andy Burnham’s first full day as prime minister began with a promise to ease the cost of living — a six‑month VAT cut on household electricity bills from 5% to zero, saving a typical home about £45 a year from 1 October. But by the evening, the move was already under fire from critics who called it an unfunded giveaway that leaves the Treasury facing a £22bn black hole.
The cut, which applies in England, Scotland and Wales, will be paid for by scrapping the digital ID programme — a project that was set to cost £1.8bn over three years, according to the government. Ministers said the policy would cost £850m this financial year. Jonathan Reynolds, the new business secretary, insisted the cut was funded “until the end of the financial year” in March 2027, with any extension dependent on the next Budget.
“Burnham cuts VAT on electricity to zero, funded by cancelled digital ID, but critics call it unfunded and economists warn of £22bn black hole.”
But Darren Jones, sacked as chief secretary to the prime minister on Monday, called it an unfunded tax cut. “The government will have to set out how it will pay for its new policies at the budget,” he wrote on X. Mel Stride, the Conservative shadow chancellor, went further: “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 questioned the targeting of the policy. Since the start of the Iran war, the IFS noted, gas prices have risen 24% while electricity has risen only 5%. “If the goal of today’s policy is to help households that have lost out as a result of the war, it is not well targeted at achieving that aim,” it said. Cornwall Insight predicted the energy price cap would rise 2% in October, meaning the VAT cut may not prevent many households from paying more overall.
Northern Ireland will not see the VAT reduction because post‑Brexit EU rules limit VAT‑free goods there. Instead, the Stormont government will receive equivalent funding for its own cost‑of‑living measures.
The row over the VAT cut is only the beginning. City A.M. reported late Tuesday that chancellor John Healey faces a £22bn gap between Burnham’s spending pledges — including a promise to end rough sleeping — and official forecasts. Leading economists warned that tax rises in the autumn are now “guaranteed”. With less than 24 hours in power, Burnham’s first gesture of relief is already colliding with the reality of a strained public purse.
