Andy Burnham announces £850m energy bill tax cut in first major move as Prime Minister

21 July 2026 , 08:47

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Andy Burnham announces £850m energy bill tax cut in first major move as Prime Minister

Andy Burnham has announced an £850 million tax cut on energy bills to help ease the cost-of-living crisis in his first significant policy as Prime Minister.

The Government will tackle rising bills by removing VAT from household electricity bills from October 1, in time to impact the next Ofgem price cap.

Chancellor John Healey said the cut would be funded by cancelling the £1.8 billion Digital ID programme.

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

“Today’s energy tax cut will give families some breathing room on bills, and provide some reassurance this winter.

“This measure is funded this year from cancelling the Digital ID programme, and it will help bring down inflation while supporting households in every postcode.”

Cutting VAT on electricity bills is expected to take £45 off the yearly price cap in October - this is on top of the £150 removed at the last budget.

Energy suppliers will pass the VAT reduction on to all customers. Small businesses, charities, and residential care homes will also benefit.

The Government said it has acted to provide immediate support for Brits after the Iran war and Russia’s invasion of Ukraine pushed energy bills up

The Prime Minister said: “Westminster has not been working for people for too long, with families struggling with the cost of living.

“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.”

In his first address to the nation as Prime Minister, Mr Burnham pledged the biggest change to British politics in 40 years, and said he would deliver “a new political model and a new economic model” for Britain.

Among the measures Mr Burnham is exploring to help hard-pressed households with the cost of living are rent controls, support for energy bills and capping the cost of bus fares.

“We’re looking at measures that could make a difference this year. So we are looking at all of those things, but we’ll make more announcements tomorrow,” he told reporters in Downing Street’s rose garden on Monday.

Elizabeth Baker

Technology & Business Editor