PRIME MINISTER ANDY BURNHAM ANNOUNCES VAT CUT ON ELECTRICITY BILLS FROM OCTOBER TO REDUCE HOUSEHOLD ENERGY COSTS. (PHOTO).

Prime Minister Andy Burnham announces VAT cut on electricity bills from October to reduce household energy costs

Prime Minister Andy Burnham has announced plans to remove VAT from household electricity bills from October as part of the government's first measures aimed at reducing living costs.

The policy will reduce VAT on electricity bills from 5% to 0%, with the government estimating the change could lower annual household energy costs by about £45 based on the current price cap.

The announcement comes as energy prices are expected to remain under pressure later this year following tensions in the Middle East.

According to the government, the VAT reduction will be introduced alongside the £150 energy bill reduction announced in the previous Budget.

The Treasury estimates the new policy will cost £850 million during the 2026/27 financial year. Ministers say it will be funded by cancelling the proposed Digital ID card scheme, which had an estimated cost of £1.8 billion.

Former Cabinet minister Darren Jones said the government would need to provide further details on how the measure would be financed, noting that the Digital ID programme had not yet been funded.

Announcing the policy, Burnham said the government wanted to provide immediate relief for households facing higher living costs.

“Westminster has not been working for people for too long, with families struggling with the cost of living,” he said.

“That needs to change. 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.”

The government said additional cost-of-living measures are being considered, including possible reductions in bus fares, rent control proposals and a longer-term review of the income tax personal allowance, which has remained at £12,570 for the past five years.

Downing Street said any further long-term measures would be announced during the Budget later this year.

Energy suppliers are expected to pass the VAT reduction directly on to consumers once the policy takes effect.

Chancellor John Healey said the government was focused on easing financial pressure on households.

“For too long, too many people have struggled with the cost of living,” he said.