Britain’s inflation rate fell further than expected to 2.6% in June, giving Andy Burnham a tailwind as he unleashed two major cost-of-living interventions in his first week as prime minister.
The consumer prices index dropped from 2.8% in May, beating economists’ forecasts of 2.7%, the Office for National Statistics said. Grant Fitzner, the ONS chief economist, pointed to falling food prices – “driven by products including chocolate, margarine and beef” – and “bigger discounts than last year” in summer clothing sales as key drivers. A dip in crude oil costs also helped.
“Inflation falls to 2.6%; Burnham cuts electricity VAT and caps bus fares at £2 amid criticism over funding.”
But analysts warned the reprieve may be temporary. The National Institute of Economic and Social Research (Niesr) said it expected inflation to worsen in the second half of the year, reflecting a 13% rise in the energy price cap from July and “the deteriorating situation around Iran”.
Undeterred, Burnham pressed ahead with two flagship pledges. On Tuesday he announced VAT on household electricity bills would be cut from 5% to zero from 1 October, saving a typical home about £45 a year. The move, which also benefits small businesses, charities and care homes, is funded by scrapping the £1.8bn digital ID programme, with £850m of that allocated this financial year. Business secretary Jonathan Reynolds said the cut would give people “breathing space”.
A day later, Burnham capped single bus fares across England at £2 from January 2027 – reversing an increase imposed by Keir Starmer and Rachel Reeves in 2024. The scheme, expected to cost more than £500m, covers all of England except London, which already has lower fares. Transport secretary Heidi Alexander told BBC Breakfast: “We’re not going to be giving those grants to international climate projects in other countries. We’re going to be making those loans instead, so that money comes back.” Around £400m of the cost comes from switching international climate finance to loans, with the rest from departmental savings.
However, the funding strategy drew immediate fire. Darren Jones, sacked as chief secretary to the prime minister on Monday, wrote on X that the digital ID programme was “unfunded”, calling the VAT cut “good” but warning “the government will have to set out how it will pay for its new policies at the budget”. Shadow chancellor Mel Stride accused Burnham of “smoke and mirrors”, saying: “The cuts to the Digital ID card budget are not real because the money was never provided in the first place.”
Government borrowing in June came in at £16bn – “nearly bang on target” according to Channel 4 News – adding to the pressure on the new prime minister to show his sums add up. The new chancellor, John Healey, acknowledged “there is much more to do” but insisted: “We have chosen to focus on the cost of living in our first week, signalling that concern for working people will be at the heart of everything we do.”
