Andy Burnham eliminates VAT on electricity in his first blow against the cost of living in the UK

Andy Burnham has chosen electricity bills to mark his arrival at Downing Street. Just hours after taking office, the new British prime minister has announced the temporary elimination of VAT on domestic electricity, the first decision of a Government that wants to concentrate its political capital on the cost of living.

The tax will drop from 5% to 0% starting October 1 and will remain suspended for six months. Downing Street estimates that the measure will reduce the annual reference bill by about 45 pounds, although the real saving during the application period will be around 25 pounds for an average household, according to the British Institute for Fiscal Studies.

"I said I would give people a bit more breathing space. Today I am taking immediate action, cutting taxes on energy bills to put more money in their pockets," Burnham defended in his first major economic announcement.

The reduction will apply in England, Scotland, and Wales, also to those with fixed rates. Northern Ireland is excluded due to the fiscal rules agreed after Brexit, although its Executive will receive an equivalent amount to adopt its own measures against the rising cost of living.

A limited relief before winter

The decision has an obvious political charge. Burnham wants to demonstrate speed after replacing Keir Starmer and becoming the seventh British prime minister since the Brexit referendum. His first measure can appear directly on bills during the upcoming winter, when energy consumption and pressure on households increase again.

The economic scope is more modest. The elimination of VAT will only affect electricity and will exclude gas, whose price has suffered a much greater increase in recent months. Households with electric heating, heat pumps, or electric vehicles will obtain a greater benefit than those who depend mainly on a gas boiler.

The Institute for Fiscal Studies also warns that households with higher consumption will receive the highest savings in absolute terms, although the reduction will be more significant within the budget of lower-income families. The organization believes that more precise tools exist to help those facing the greatest difficulties.

Downing Street estimates that the measure will cost around 850 million pounds during the 2026-2027 fiscal year and will reduce inflation by one tenth. The Government presents it as a first step and acknowledges that, by itself, it will barely alleviate a crisis that has left energy bills well above pre-2022 levels.

Funding opens the first dispute

Burnham intends to finance the reduction by canceling the national digital identity program promoted by Starmer. The previous Executive estimated that its development would require about 1.8 billion pounds over three years and wanted to use it to modernize public services and combat irregular work.

The explanation quickly met with objections. The digital project did not yet have a closed budget item, as its cost was to be covered by future savings and adjustments in the budgets of the different ministries. Eliminating it avoids that expense, but it also does not automatically free up a readily available sum of money.

Former government coordination chief Darren Jones, removed during the cabinet reshuffle, has asked the Executive to explain in the upcoming Budgets where the funds will actually come from. The Institute for Fiscal Studies estimates that departments will have to find nearly 850 million in cuts or reallocations that have not yet been specified.

Burnham has insisted to his ministers that all policies will be funded and will respect fiscal rules. The discussion will reappear in the autumn, when the new Executive presents its first accounts and decides whether to reinstate VAT in April or try to make the temporary measure permanent.

A Government dedicated to the cost of living

The first Council of Ministers served to extend this priority to the entire Administration. Burnham has asked each department to seek measures, large or small, capable of reducing daily expenses and offering perceptible results during the coming weeks.

"We need to be a Government focused on the cost of living," he has told his team. His intention is for the Housing, Energy, Transport, Labour, and Treasury portfolios to review their plans and propose immediate interventions before the long-range economic program arrives.

The prime minister has cited possible actions on rents, public transport, and essential bills. His experience in Greater Manchester, where he regained public control of the bus network and capped some fares, anticipates a strategy based on combining public intervention, decentralization, and visible policies for users.

The speed also responds to the electoral scenario. Labour lost much of the support gained in 2024 during Starmer's two years and observes how the far-right Reform UK, led by Nigel Farage, capitalizes on the discontent over prices, immigration, and the deterioration of public services.

Healey will monitor the accounts of the new stage

The appointment of John Healey as Chancellor of the Exchequer has been one of the biggest surprises of the new cabinet. The former Defense Secretary resigned in June over his differences with Starmer on military spending and now returns to reconcile Burnham's social promises with public finances under strong pressure.

Healey knows the Treasury from his time as Financial Secretary during the governments of Tony Blair and Gordon Brown. In his first intervention, he set fiscal credibility as the main obligation and warned ministers that they would have to carefully review their budgets.

His election also sends a message to international allies. The United Kingdom maintains its commitment to increase defense spending while facing higher debt costs, a weak economy, and new demands for investment in housing, health, and infrastructure.

Every new tax cut will have to compete with these needs, so the margin to maintain popular announcements without increasing taxes, cutting other items, or taking on more debt will be limited.

A cabinet with rupture and continuity

Burnham has introduced significant changes compared to Starmer's team. Rachel Reeves has left the Treasury and David Lammy has left the Government, while several leaders who clashed with the former prime minister have regained central positions.

Ed Miliband moves from Energy to Foreign Affairs, Wes Streeting takes over Defense, and Miatta Fahnbulleh now leads energy policy. Angela Rayner returns as Housing Minister, Yvette Cooper takes charge of Health, and Shabana Mahmood remains at the head of the Home Office, where she will continue to manage migration and the asylum system.

The composition combines experienced profiles with an evident redistribution of internal power. Burnham has removed a good part of Starmer's closest core and has rewarded leaders who supported his arrival, although he has asked to leave behind the divisions that wore down Labour in recent months.

The new prime minister also prepares a Downing Street office in Manchester from which he will work at least one day a week. The so-called 'Number 10 of the North' aims to make decentralization a hallmark and move part of decision-making outside of London.

Housing opens the second social front

The electricity bill has been the first economic measure, but the first announcement made by Burnham upon entering Downing Street was dedicated to homelessness. The government will allocate an additional 340 million pounds over the next five years to prevent more people from ending up living on the streets and strengthen their care before winter.

Burnham has commissioned a joint strategy from city councils, mayors, health services, and state departments. He also wants to promote the construction of public housing, one of the policies he links with reducing the welfare bill and the cost of temporary accommodation.

The prime minister has rejected the idea that ending homelessness will take decades and has made this issue a test of the state's ability to intervene early. The full program will have to specify available housing, the relationship with local administrations, and the funding of support services.

Continuity with Ukraine and rapprochement with Europe

The first international calls show more continuity than rupture. Burnham has reaffirmed to Volodymyr Zelensky that British support for Ukraine and pressure on Russia will remain unchanged, including work within European defense alliances.

He has also spoken with Donald Trump, Ursula von der Leyen, Emmanuel Macron, Friedrich Merz, António Costa, and NATO Secretary General Mark Rutte. The conversation with the President of the European Commission focused on bringing the United Kingdom and the European Union closer before their next bilateral summit.

Ed Miliband has placed strengthening that relationship after Brexit among his priorities, along with the alliance with the United States, support for Kyiv, and the search for lasting peace in the Middle East. Burnham thus inherits a foreign policy based on Europe and NATO, although he will have to manage an unpredictable relationship with the Trump White House.

The Government will detail new measures against the cost of living in the coming days and will present an economic plan for the next decade before the end of the year. The first major test will come with the autumn Budget, when Burnham and Healey will have to convert their promises of immediate relief into a financial strategy that can be sustained beyond the first six months.