Andy Burnham Cuts VAT on Electricity Bills in First Cost-of-Living Move

UK Prime Minister Andy Burnham has announced the removal of VAT on household electricity bills as his government's first major measure to ease the cost-of-living crisis.

The tax cut, which will take effect from October, is expected to reduce the average annual electricity bill by around £45 per household.

Burnham said the move delivers on his pledge to give people "some breathing space" amid rising living costs.

"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," he said.

Chancellor John Healey described the measure as an important step to help families cope with energy costs ahead of winter.

According to Downing Street, the policy will cost approximately £850 million in the 2026–27 financial year. The government said it will fund the measure by cancelling the Digital ID programme, which is expected to save around £1.8 billion over three years.

The government is also preparing additional cost-of-living measures, including possible reductions to the bus fare cap and a temporary freeze on private-sector rents. More details are expected in the autumn Budget.

Officials added that lowering electricity costs could also encourage more households to switch from gas boilers to electric heat pumps by narrowing the price gap between gas and electricity.

In Northern Ireland, VAT on electricity bills will remain because of obligations under EU tax rules. However, the UK government said it will provide equivalent funding to the Northern Ireland Executive to support its own cost-of-living measures.