Key points
- UK Prime Minister Andy Burnham says VAT on domestic electricity bills will be removed from Oct. 1.
- The measure is expected to reduce the average annual household electricity bill by about €45.
- The tax cut will be funded by savings from scrapping a €1.8 billion digital ID programme.
- Analysts say the measure may provide limited relief as energy prices are expected to rise again in October.
Main story
British Prime Minister Andy Burnham has announced plans to remove value-added tax (VAT) from domestic electricity bills from Oct. 1, making it one of his first major policy decisions aimed at easing the country’s cost-of-living crisis.
Burnham made the announcement on Tuesday, his second day in office, saying the measure would reduce the average annual household electricity bill by about 45 euros from the current average of 1,862 euros.
He said the tax cut would be financed through savings generated by cancelling a 1.8 billion euro digital identity programme announced on Sunday.
“We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope,” Burnham said.
The announcement forms part of a broader package of early measures the new prime minister said would provide immediate relief to households, particularly those on lower incomes.
However, some energy analysts questioned the overall impact of the policy, noting that higher gas prices linked to the conflict in the Middle East could push regulated energy prices higher from October, potentially offsetting much of the benefit.
Energy bills have remained a major contributor to Britain’s cost-of-living pressures since wholesale gas prices surged following Russia’s invasion of Ukraine in 2022.
Although prices have moderated since mid-2023, household energy costs remain up to 60 per cent higher than before the energy crisis.
The End Fuel Poverty Coalition welcomed the VAT cut as a positive step but said it would not sufficiently address the financial challenges facing many households.
Ruth Curtice, Chief Executive of the Resolution Foundation, argued that the measure could disproportionately benefit higher-income households because it was not specifically targeted at vulnerable consumers.
She said the funds could have been used more effectively to provide targeted support, particularly with energy bills expected to increase further in October.
Burnham has indicated that more policy announcements will follow as he seeks to deliver quick and visible improvements for households.
He has also pledged to tackle rough sleeping across Britain and is expected to consider measures such as bus fare caps, building on policies previously introduced during his tenure as Mayor of Greater Manchester.
The new prime minister hopes the early reforms will strengthen public confidence in the governing Labour Party as it faces growing political competition from Nigel Farage’s Reform UK.
The issues
The VAT cut is intended to ease household energy costs, but rising wholesale gas prices could reduce its impact. The policy also highlights the challenge facing the new government in balancing cost-of-living support with fiscal discipline.
What’s being said
“We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope.” — Andy Burnham, UK Prime Minister
What’s next
The VAT exemption is scheduled to take effect on Oct. 1, while Burnham is expected to announce additional measures aimed at reducing living costs and supporting lower-income households.
Bottom line
The UK government is moving quickly to lower household electricity costs through a VAT cut, but rising energy prices could limit the immediate financial relief for consumers.
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