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Britain’s new Prime Minister Andy Burnham is moving to cut household electricity bills by scrapping value-added tax (VAT) on domestic power, while cancelling a controversial £1.8 billion digital ID programme in one of his first major policy decisions.
The government will remove the 5 per cent VAT charged on household electricity bills from 1 October, Downing Street said on Tuesday. The move is expected to save a typical household around £45 a year.
The cost of the tax cut during the current financial year will be funded by cancelling the digital ID programme, which was expected to cost £1.8 billion over three years.
The move gives Burnham an early opportunity to draw a clear political contrast with the previous government, abandoning a contentious policy while directing the savings towards immediate relief for households facing a cost-of-living squeeze.
“I said I would give people a bit more breathing space,” Burnham said in a post on X.
“Today I’m taking immediate action – cutting taxes on energy bills to put more money in your pocket.”
Digital ID scheme scrapped
Burnham’s office had earlier said that scrapping the government’s planned digital ID scheme would be among his first moves after taking office.
The programme was designed to require all employees to hold a digital identity document. The government had presented it partly as a tool to tackle illegal migration.
But the proposal faced opposition from across the political spectrum and was described as a “fiasco” by a cross-party committee of lawmakers.
The new government said cancelling the programme would help fund the electricity tax cut. The measure is expected to cost around £850 million during the current financial year.
The decision marks an early political statement from Burnham’s government, which has pledged to demonstrate that Westminster can deliver more directly for ordinary households.
How the electricity tax cut will work
The VAT reduction will apply in England, Scotland and Wales from 1 October. Northern Ireland will receive equivalent funding, as its energy market is regulated differently, the government said.
Energy suppliers have been instructed to pass the full reduction on to household customers, including those on fixed-rate tariffs.
The measure will also benefit some small businesses that qualify for domestic energy VAT relief but are not registered for VAT. Eligible charities and residential care homes will also receive the reduced rate.
New Chancellor John Healey said the move would provide “some reassurance this winter” to households facing continued pressure from energy and other living costs.
The savings will vary depending on how much electricity a household uses. Larger households and those with higher consumption are likely to see greater savings in absolute terms.
Some vulnerable households are also among the biggest electricity users, particularly those relying on medical equipment at home.
Burnham moves quickly after taking office
The announcement comes a day after Burnham became Britain’s new prime minister, making him the country’s seventh leader since 2016.
He has pledged to “bring back hope” to Britain and improve living standards after years of economic stagnation and political frustration.
The electricity VAT cut is among his first major measures aimed at delivering a tangible benefit to households. The decision to fund it by scrapping the digital ID scheme also allows the new government to combine an economic pledge with a political reversal.
The digital ID programme had been intended to create a digital identity document for workers and was promoted as part of efforts to tackle illegal migration. However, it had become a politically divisive proposal.
By abandoning the scheme and redirecting the planned spending towards electricity bill relief, Burnham is signalling that his government will prioritise immediate cost-of-living concerns over the previous administration’s digital ID plans.
New cabinet faces early test
Burnham’s new cabinet is due to meet for the first time on Tuesday.
Former Defence Secretary John Healey has been appointed chancellor, replacing Rachel Reeves, who had held the post since the Labour Party’s landslide election victory in 2024.
For Burnham, the electricity tax cut will be an early test of his promise to improve living standards while maintaining control over government finances.
The savings for individual households may be relatively modest. But politically, the move allows the new prime minister to begin his tenure with a clear message: a controversial government programme is being scrapped and the money is being redirected towards reducing household costs.
The challenge for Burnham will now be to turn that early political signal into broader economic gains for families struggling with the cost of living.
