Andy Burnham used his first full day as prime minister to announce a VAT cut on household electricity bills – a move that will save a typical home £45 a year from 1 October, but immediately drew fire over how it will be paid for.
The reduction from 5% to zero will apply across England, Scotland and Wales, with equivalent funding for Northern Ireland, where EU rules prevent automatic application. Small businesses, charities and residential care homes eligible for the reduced rate will also benefit. The government says the cut will reduce the annual price cap and knock about 0.1 percentage points off headline inflation.
“Burnham cuts VAT on electricity to zero from October, saving £45 per home, but faces criticism over funding”
Funding for the £850m measure comes from scrapping the digital ID programme, which was set to cost £1.8bn over three years. But Darren Jones – sacked as chief secretary to the prime minister in Burnham’s reshuffle – accused the government of announcing an unfunded tax cut, writing on X that the digital ID scheme itself was “unfunded”. Conservative shadow chancellor Mel Stride called the move “smoke and mirrors”, arguing the money was “never provided in the first place”.
Gathering his cabinet for the first time, Burnham told ministers: “We need to be a cost of living government, getting that cost of living down, looking at all possible ways of doing that.” Business secretary Jonathan Reynolds said the cut would give people “breathing space” but admitted funding only lasts “until the end of the financial year” in March 2027, with any extension to be decided in the next budget.
The new PM is already planning further cost-of-living measures: a government source confirmed to the Mirror that Burnham will announce a cut in the national bus fare cap from £3 to £2 from January, reversing Rachel Reeves’s increase. As Greater Manchester mayor, Burnham had imposed a £2 limit on fares in 2022. He also intends to accelerate the rollout of a national care service, a promise from Labour’s manifesto.
Meanwhile, Burnham held a 20-minute phone call with Donald Trump, which Downing Street described as “extremely warm”. Trump later said the new PM “has got a big job ahead of him” and pledged US help. Foreign secretary Ed Miliband is expected to meet US secretary of state Marco Rubio at the ASEAN summit in the Philippines on Wednesday.
With government borrowing in June at £16bn – nearly bang on target – and the Resolution Foundation warning of just £10bn headroom against Labour’s fiscal rules, the question of how Burnham will fund his ambitions remains unresolved. As the Institute for Fiscal Studies’ Helen Miller noted, a VAT cut is “a poor lever” for helping the poorest households, since richer households benefit most in cash terms.
