In one of his first acts as Prime Minister, Andy Burnham has cut VAT on electricity bills, following through on his promise to give households more breathing space. The change will take effect from October 1.
Government Announces VAT Reduction on Electricity
Announcing the cut, which will be funded by scrapping the digital ID scheme, the PM 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."
Cutting VAT from 5% to zero will save households approximately £45 on their annual electricity bills, the Government says. This is on top of the £150 removed from energy bills in the last Budget.
Funding and Impact of the VAT Cut
The reduction is expected to cost £850m in 2026/27, funded by the cancellation of the £1.8bn Digital ID programme. Dubbed 'BritCard', the ID scheme was one of Sir Keir Starmer's landmark policies, and one that proved unpopular, with more than 2.6 million people signing a petition condemning the policy.
The latest forecast for the energy price cap set by Ofgem is £1,849 for a typical household. However, the resumption of the US-Iran war could well disrupt global oil and gas markets, pushing domestic prices up, write David Hughes, Jessica Coates and David Lynch.
Who Benefits from the VAT Cut?
The expectation is that all suppliers will pass the VAT reduction on to all customers, including those on fixed tariffs. Small businesses that qualify for the domestic energy VAT relief and are not registered for VAT, as well as charities and residential care homes eligible for the reduced rate, will also benefit, says the Government.
New Chancellor John Healey said: "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."
Reaction and Cabinet Reshuffle
Opposition to the policy has so far been light, but speaking to the BBC this morning, Lib Dem leader Ed Davey damned the move with faint praise: "I don't think it's the best way to help people with energy bills and it doesn't go far enough, but at least it's something, isn't it?"
The changing of the guard is well under way with many of Sir Keir's allies already shown the door as Burnham builds a Cabinet to take forward his policy ideas. They are set to meet around the table for the first time this morning.
New Cabinet Appointments
The sweeping reshuffle began with the appointment of John Healey as the incoming Chancellor, replacing Rachel Reeves. Other prominent figures shown the door include former Deputy Prime Minister David Lammy, ex-Attorney General Lord Hermer, and former Housing Secretary Steve Reed. Louise Haigh, a key player in Burnham's rise to power, has been appointed First Secretary of State and Chancellor of the Duchy of Lancaster. Ed Miliband has moved to the role of Foreign Secretary, while Shabana Mahmood stays on as Home Secretary. Wes Streeting returns to the Cabinet as Defence Secretary, and Angela Rayner takes up her former role of Housing Secretary. Yvette Cooper continues in Cabinet, moving from the Foreign Office to Health and Social Care Secretary. Jonathan Reynolds has been handed the expanded role of Business Secretary with a portfolio now encompassing science and innovation. Lisa Nandy remains as Culture Secretary with a broadened brief taking in digital affairs. These changes see the abolition of the Department for Science, Innovation and Technology (DSIT).
Hamish Falconer will spearhead efforts on the UK's post-Brexit ties with the European Union, while Ellie Reeves, sister of the former chancellor, has been elevated to the position of Attorney General. Anneliese Midgley, who was central to Mr Burnham's return to Parliament and his subsequent rise to No. 10, has been appointed Chief Whip.
