Andy Burnham announces 'unfunded' £850m tax cut on energy bills
Darren Jones, who lost his Cabinet post as chief secretary to the prime minister when Andy Burnham took office, questioned how the policy would be paid for.
Andy Burnham’s first major policy announcement – an £850m tax cut on electricity bills – has been criticised as “unfunded” by a sacked ally of Sir Keir Starmer.
From October 1 electricity bills will be VAT free, saving households around £45 per year as part of the Prime Minister’s promise to help ease cost-of-living pressures.
But Darren Jones, who lost his Cabinet post as chief secretary to the prime minister when Mr Burnham took office, questioned how the policy would be paid for.
The Government said the move will be funded in part by scrapping Sir Keir’s digital ID project, which had been estimated to cost around £600 million a year over three years.
But that falls short of the estimated £850 million hit to tax revenues from the VAT cut and funding for digital ID was meant to have come from unidentified Whitehall savings.
Mr Jones, who was the minister in charge of the digital ID scheme, said in a post on X: “Good news that VAT will be cut on electricity bills. It’s a simple way for families to save a few quid, and to mechanically help to keep inflation that little bit lower.
“But the DigitalID program was unfunded. The government will have to set out how it will pay for its new policies at the budget.”
His public criticism is a sign that Mr Burnham’s premiership could face problems from Starmer loyalists.
The Government insisted the £1.8 billion cost of the digital ID scheme over three years had been “scored” by the Office for Budget Responsibility, meaning the money would have had to be found.
The money that would have been used has been reprioritised to fund the tax cut.
Chancellor John Healey said: “This measure is funded this year from cancelling the digital ID programme, and it will help bring down inflation while supporting households in every postcode.”
Mr Burnham said: “I said I wanted to give people breathing space, and that’s what I’m announcing on my second day as Prime Minister.
“We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope.”
But Tory leader Kemi Badenoch said: “It’s only one day into Burnham’s Government and already the explanations are falling apart.
“You can’t use the funding from an unfunded programme to pay for cheaper bills.”
Martin Lewis, founder of MoneySavingExpert said the VAT cut would have little impact. “This is a good totemic step and very welcomed,” he said. “Yet in practice people won’t feel much benefit.”
Helen Miller, director of economic think tank the Institute for Fiscal Studies, said she was “disappointed” by a policy which creates more complexity in the tax system and will be “hard to undo” after a year.
“Government think they have found funding for this year – but only by reallocating savings that haven’t yet been made,” she said.
“If the Government can’t add 5 per cent VAT back onto bills next year, how will they pay for it next year and the year after?”
Energy suppliers are expected to pass the VAT reduction on to all customers, including those on fixed tariffs, the Government said.
Officials said the VAT cut, from 5 per cent to 0 per cent, is estimated to reduce the consumer prices index measure of inflation by around 0.10 percentage points.
The policy will cost the Exchequer around £850m in 2026/27. For households with dual fuel bills the VAT cut will only apply to the electricity used, not gas, Downing Street said.