Prime Minister Andy Burnham has confirmed a £45 annual reduction in household electricity bills by cutting VAT from domestic energy bills, effective from October 1. The move, announced on his second day in office, is designed to provide immediate relief amid the ongoing cost-of-living crisis.
Immediate Action on Energy Costs
The new Labour MP for Makerfield, who became Prime Minister on Monday, stated that the change is immediate. The government has confirmed the removal of VAT from domestic electricity bills starting October 1, just in time to affect the next Ofgem price cap. This measure is fully funded for the current financial year by cancelling the £1.8 billion Digital ID programme.
Burnham said: "Westminster has not been working for people for too long, with families struggling with the cost of living. That needs to change. I said I wanted to give people breathing space, and that’s what I’m announcing on my second day as Prime Minister. We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope."
Expected Savings and Impact
Cutting VAT on electricity bills is projected to save around £45 per year on the Ofgem price cap in October. This saving adds to the £150 already removed from bills in the last Budget. The government has warned all suppliers, including British Gas, EDF, EON, Ovo, and Octopus Energy, that they are expected to pass the VAT reduction on to all customers.
Chancellor of the Exchequer John Healey MP, appointed the previous night, commented: "For too long, too many people have struggled with the cost of living. Today’s energy tax cut will give families some breathing room on bills, and provide some reassurance this winter. This measure is funded this year from cancelling the Digital ID programme, and it will help bring down inflation while supporting households in every postcode."
Funding and Future Outlook
The cost of this immediate action for this financial year is covered by the cancellation of the Digital ID programme, which was allocated £1.8 billion. The government emphasizes that this is a targeted measure to alleviate pressure on households ahead of winter, with further cost-of-living support expected in the upcoming Budget.
