Full Breakdown
Burnham Government Announces VAT Cut on Electricity Bills
7/21/2026, 10:03:58 PM
Core Announcement
On his first full day in office, Prime Minister Andy Burnham announced that the standard 5 % value-added tax on household electricity will be removed, taking effect on October 1. The reduction is projected to save a typical household roughly £45 a year. Ministers said the measure will be financed by the cancellation of the Digital ID programme, a scheme that had been expected to cost £1.8 billion over three years. The Treasury estimates the VAT cut will cost £850 million in the current financial year and should lower inflation by 0.1 percentage points.
Background & Context
Burnham took office amid a cost-of-living crisis, promising “breathing space” for families struggling with rising energy prices. Household electricity costs rose 13 % in July after a surge in gas prices linked to the US-Israeli war with Iran. The VAT cut follows earlier interventions, including the removal of a levy on energy bills by former Chancellor Rachel Reeves in April. Burnham’s new cabinet, announced the same day, includes John Healey as chancellor and Jonathan Reynolds as business secretary.
Data & Statistics
- VAT rate removed: 5 % on electricity.
- Typical household saving: ~£45 per year.
- Digital ID programme cost: £1.8 billion over three years (now cancelled).
- Fiscal impact of VAT cut: £850 million this year.
- Inflation effect: projected 0.1 percentage-point reduction.
- Energy price rise: 13 % in July, driven by higher gas costs.
Official Statements & Responses
Chancellor John Healey added that the measure will “provide some reassurance this winter”.
Verbatim Quotes
What’s Next
A detailed funding plan is expected to be presented at the upcoming Budget, where the Treasury will explain how the VAT cut will be financed and whether it will be extended beyond the current financial year. The decision to retain the relief in future years will depend on that budget outcome.
