Andy Burnham, the UK's newly appointed prime minister, has announced the removal of VAT from household electricity bills from October as his first cost-of-living measure, expected to save households around £45 a year.
Key facts
- VAT will be removed from household electricity bills from October.
- The change is expected to save households an average of £45 a year.
- Chancellor John Healey says the reduction will be funded by cancelling a planned digital ID scheme.
- Andy Burnham became the UK's seventh prime minister since 2016, according to the BBC.
- A former minister has described the plan as 'unfunded'.
Newly appointed Prime Minister Andy Burnham announced on Tuesday that the government will remove VAT from household electricity bills from October, in what he framed as an immediate move to ease cost-of-living pressures for households in Britain. According to the Guardian, the change is expected to reduce bills by an average of £45 a year.
The announcement came less than a day after Burnham became the UK’s seventh prime minister since 2016, according to the BBC. It was made ahead of his first cabinet meeting, as ministers arrived at Downing Street for the new prime minister’s first meeting with his government.
Newly appointed chancellor John Healey said the reduction would be funded by cancelling a planned digital ID scheme. The newly appointed business secretary, Jonathan Reynolds, defended the policy on Radio 4’s Today programme, describing the cut as “a statement of priorities” and “a straightforward switch spend.”
The policy has drawn scrutiny. According to the Guardian, former minister Darren Jones claimed the cut remained unfunded, a characterisation Reynolds pushed back against, saying it was “a legitimate decision” and “the right decision to make.”
Campaigners gave a cautious welcome. Simon Francis, coordinator of the End Fuel Poverty Coalition, said removing VAT from electricity bills was “a positive statement of intent by the new administration” but did “not address the scale of what households are facing,” pointing to millions still paying an unaffordable share of their income on energy and record levels of energy debt built up over successive winters.
Francis urged the prime minister to go further, calling for an enhanced warm home discount, reformed cold weather payments and an energy debt relief scheme. He also argued that lasting reductions would require breaking the link between gas and electricity prices and expanding homegrown renewables and energy-efficient homes.
Separately, according to the Guardian, António Costa, the president of the European council, said in a post on X that he held a “good” phone call with Burnham in which they agreed to “further strengthen” EU-UK relations and continue to cooperate to support Ukraine, alongside discussion of common geopolitical challenges facing Europe.
Why it matters
Energy costs have been a central pressure on household budgets, and the VAT cut is the first concrete policy from a brand-new prime minister trying to show quick action on the cost of living. The debate over how it is funded, and whether it goes far enough, will shape early judgements of Burnham's government.
Frequently asked questions
When will the VAT cut on electricity bills take effect?
The removal of VAT from household electricity bills is set to take effect from October.
How much will households save?
The move is expected to save households an average of £45 a year, according to the Guardian.
How will the cut be funded?
Chancellor John Healey said the reduction will be funded by cancelling a planned digital ID scheme, though a former minister described the plan as unfunded.