Burnham government cuts VAT on electricity bills, funding move via Digital ID cancellation

Prime Minister Andy Burnham has announced the removal of Value Added Tax on domestic electricity bills, a measure set to take effect from 1 October. The policy represents the new administration’s first cost-of-living initiative, with officials estimating the change will reduce the annual Ofgem price cap by approximately £45. Suppliers are expected to pass these savings directly to consumers.

Chancellor John Healey confirmed the funding mechanism for the tax cut, stating that the government will cancel the Digital ID programme this year to cover the expenditure. Healey emphasised that the energy tax cut is designed to provide families with reassurance and financial breathing room ahead of the upcoming winter season.

Burnham framed the announcement as a direct response to prolonged struggles with the cost of living, describing the move as a necessary shift away from a Westminster that has not been working for people. Speaking on his second day in office, the Prime Minister stated that the government aims to bring back hope to Britain and provide immediate relief to households.

The announcement follows Burnham’s surprise appointment of Healey as chancellor earlier in the week. The Prime Minister had previously hinted at broader tax reforms, including potential wealth taxation in his 10-year plan, although advisers are currently prioritising adjustments to the capital gains tax threshold.

While academics have urged the government to introduce a wealth tax on the super-rich to make the tax system fairer, the current administration is focusing on these immediate cost-of-living adjustments. The VAT cut marks the initial step in the new government’s fiscal strategy, with further tax and spending plans expected to be laid out later in the week.