In one of his first acts as Prime Minister, Andy Burnham has cut VAT on household electricity bills to zero, saving a typical home about £45 a year from October. The move, announced alongside a £2 bus fare cap in England, is the opening salvo in what he calls a fight to give people “breathing space” on their finances.
Burnham, in his first speech from Downing Street on Monday, said he would “bring essentials under public control” to make them more affordable. The cost of living, he has argued, has stopped people from going out for a pint on a Friday, taking the kids out, or going on holiday.
“PM Andy Burnham cuts VAT on electricity to zero from October, saving households £45 a year, and caps bus fares at £2.”
The new chancellor, John Healey, will be responsible for delivering any changes and outlining how to pay for them. But the global picture is volatile: energy bills rose again earlier this year after US-Israeli strikes on Iran sent wholesale gas costs higher, undoing a previous £150 cut to domestic bills introduced by the former Labour government under Sir Keir Starmer and Rachel Reeves.
“A more volatile world is a more expensive world,” said Adam French, of the financial information service Moneyfacts.
Labour’s general election pledge to cut household energy bills by £300 by 2030 remains under close scrutiny. One option being championed by charities and the regulator is a social tariff, which would offer discounted bills to the most vulnerable, paid for by higher charges on wealthier households.
Cutting VAT is a relatively straightforward tool, but larger households will benefit more because they use more electricity. And with energy prices still primarily driven by the wholesale cost of gas, much of what happens next is beyond the government’s control.
Burnham’s early moves signal a focus on transport and energy costs, but funding those commitments will require tough trade-offs. The new administration has yet to set out how it will pay for the bus fare cap or the VAT cut, and the chancellor’s first statement is awaited with anticipation.