Downing Street announced on Tuesday that Prime Minister Andy Burnham will eliminate the value-added tax on domestic electricity bills from 1 October. The measure, confirmed on Burnham’s second day in office, is projected to reduce the annual Ofgem price cap by roughly £45 per household, with energy companies expected to pass the saving to consumers. The government framed the move as immediate relief for families squeezed by persistent cost-of-living pressures.

The tax cut will be financed this fiscal year by cancelling the previous administration’s digital identity programme, a £1.8 billion scheme designed to issue digital ID documents to all workers. That programme, intended to tackle illegal migration, had been condemned as a “fiasco” by a cross-party committee of lawmakers. Chancellor John Healey stated that redirecting the funds would also help bring down inflation while supporting households across the country.

The announcement forms part of a rapid reorientation of government under Burnham, who secured the Labour leadership unopposed and has pledged a “new political model and a new economic model.” A sweeping cabinet reshuffle saw the departure of several senior figures from the Starmer era, including former Chancellor Rachel Reeves and ex-Deputy Prime Minister David Lammy. Healey, a surprise appointment as Chancellor, joined new Foreign Secretary Ed Miliband and Defence Secretary Wes Streeting in a top team that retains Shabana Mahmood as Home Secretary.

With the VAT removal set to coincide with the next Ofgem price cap adjustment, attention now turns to the autumn budget, where the government will need to outline how it intends to sustain fiscal credibility while delivering on promises to improve living standards. Further policy announcements are expected in the coming days as Burnham’s cabinet completes its formation.