Britain’s new Prime Minister, Andy Burnham, has moved quickly to define his economic agenda, unveiling plans to scrap taxes on household electricity bills as part of a broader effort to ease the cost-of-living pressures facing millions of families.
The policy, announced a day after Burnham formally assumed office, will eliminate value-added tax (VAT) on domestic electricity bills from October. The government estimates that the measure, which will cost roughly £850 million in the current financial year, will save the average household about £45 annually.
Presenting the move as an immediate intervention to support struggling families, Burnham argued that lower energy costs would provide relief to households already grappling with high living expenses. The government also stressed that the policy would disproportionately benefit lower-income families, which typically spend a larger share of their earnings on utility bills.
The timing of the tax cut is significant. It is expected to take effect just as Britain’s energy regulator raises the cap on electricity and gas prices, a development linked to rising global energy costs following the conflict between the United States and Iran.
To offset the loss in revenue, Burnham’s administration plans to cancel a proposed digital identification programme introduced under former prime minister Keir Starmer. The abandoned scheme had been projected to cost taxpayers £1.8 billion, allowing the government to redirect resources without immediately increasing borrowing.
The new prime minister has also signalled his intention to ease the burden on small businesses, many of which have struggled under recent tax increases. Yet Burnham faces the challenge of balancing these promises with his pledge to maintain the fiscal discipline championed by his predecessor.
That balancing act received some encouragement on Tuesday, when official figures showed that government borrowing fell more sharply than expected in June. According to the Office for National Statistics, public sector net borrowing declined to £16 billion, roughly one-third lower than the figure recorded a year earlier.
Despite the improvement, Britain’s debt burden remains substantial. The statistics agency cautioned that public debt is still historically high and remains close to the size of the country’s entire economic output.
The data arrives at a critical moment for the new Chancellor, John Healey, who recently replaced Rachel Reeves. Seeking to reassure investors, Healey emphasised that fiscal credibility would remain central to the government’s economic strategy, describing budgetary discipline as essential for both economic stability and national security.
Financial markets appeared cautiously optimistic following Burnham’s appointment, although concerns linger over his suggestion that there could be greater “flexibility” in the government’s budget rules.
Beyond the immediate measures, Burnham has outlined an ambitious long-term vision centred on reindustrialising Britain and expanding public housing. While the UK economy has struggled to regain momentum since Labour returned to power, international forecasts suggest the country could outperform several major economies this year.
