Andy Burnham has been prime minister for less than a week, but his new government already has a name: the "cost of living government." At his first cabinet meeting on 21 July 2026, he told his top team that tackling living expenses would be the defining priority, promising to give people a "sense that help is coming" on costs. The first concrete step came immediately: a cut to VAT on household electricity bills, due to take effect from October 2026. But the policy has already sparked a row over how it will be paid for, as Burnham plans to scrap the previous government's digital ID scheme to fund the £850 million tax cut.
Burnham became prime minister after replacing Sir Keir Starmer, who resigned following internal party pressure. The new PM moved quickly to reshape the cabinet, sacking Starmer loyalists such as Rachel Reeves and David Lammy, and promoting allies like Ed Miliband to foreign secretary and Louise Haigh to run the Cabinet Office. The reshuffle also saw Dan Jarvis appointed defence secretary after John Healey resigned amid a funding row, and Scottish Labour leader Anas Sarwar is set to enter the House of Lords to join the government as a business minister.
“Andy Burnham's 'cost of living government' explained: VAT cut on energy, cabinet reshuffle, and funding row over scrapping digital ID.”
The background to these changes lies in the political turmoil of 2026. Starmer's premiership had been weakened by calls for his resignation, and Burnham's rise represents a shift in Labour's direction. The new prime minister, a former Greater Manchester mayor, campaigned on a platform of addressing the cost-of-living crisis that has squeezed UK households for years. The VAT cut on energy is his signature early policy, but it has already drawn criticism from opposition parties and even from some former Starmer allies. Darren Jones, a sacked Starmer loyalist, said the digital ID programme that Burnham intends to cancel was "unfunded" and that the PM would need to explain where the money would come from. The Conservative shadow chancellor, Sir Mel Stride, accused Labour of "playing fast and loose with the public finances." Downing Street insists the cost will be covered by redirecting "savings" identified by departments that were originally earmarked for the ID scheme.
For UK readers, this matters immediately. The VAT cut on household electricity will reduce bills from October, but the debate over funding raises questions about whether other public services or projects will be affected. The scrapping of the digital ID scheme means a major government programme is being halted, potentially affecting plans for online identity verification. More broadly, Burnham's "cost of living government" signals that the new administration will focus on household finances, but the lack of detail on how to pay for further measures leaves uncertainty. The PM's promise to give people a "sense that help is coming" has bought him goodwill, but the political battle over fiscal credibility has already begun.
Q: When does the VAT cut on energy bills start? The cut applies to household electricity bills from October 2026. It was announced by Andy Burnham on his first day as prime minister and is expected to cost £850 million over the rest of the financial year.
Q: How will the government pay for the VAT cut? Downing Street says the cost will be met by scrapping the previous government's digital ID scheme, which had £1.8 billion earmarked for rollout over the next three years. However, critics argue that the ID programme was itself unfunded and that the savings are not guaranteed.
Q: Who are the key people in Burnham's new cabinet? Key appointments include Ed Miliband as foreign secretary, Louise Haigh as Cabinet Office minister, Dan Jarvis as defence secretary, and Miatta Fahnbulleh as energy secretary. Scottish Labour leader Anas Sarwar is expected to join the government as a business minister after being appointed to the House of Lords.
What happens next? The immediate focus will be on passing the VAT cut through Parliament and finalising the budget. The government's budget watchdog had previously said the digital ID funding came from existing departmental budgets, so Burnham will need to set out detailed plans to reassure markets and political opponents. Regional elections in eastern Germany this autumn may also draw attention, but in the UK, all eyes are on whether Burnham can deliver on his cost-of-living promises without damaging the public finances.