Andy Burnham has announced a cut meant to help households with bills
Martin Lewis has shared his views after Andy Burnham announced a significant tax shake-up within his first 24 hours as Prime Minister.
The newly appointed Prime Minister has revealed that one of his earliest decisions is to scrap VAT on domestic electricity bills from 1st October, coinciding with the next Ofgem price cap review. The tax reform is designed to ease the burden on households facing rising energy costs over the winter months, though money expert Martin Lewis has flagged a potential catch that many may overlook.
The MoneySavingExpert took to X to describe the tax cut as a “very welcomed” move, but cautioned that consumers may not necessarily notice the difference in their wallets.
He said: “Govt is to cut VAT on electricity bills for 6mths from 1 October. This will reduce bills by 4.8%. It says it is a £45 cut on a typical bill. It should come off all bills (inc fixes) This is a good totemic step and very welcomed. Yet in practice people won’t feel much benefit.
“The energy Price Cap on 1 October for elec & gas is currently predicted to rise 3.1% which on typical bills is over £50 on an annualised basis (and that’s likely to be in the right ballpark as we’re a decent way through the analysis period).”
“So the VAT cut gain over 6mths is mostly eaten up by that. Especially as the prediction is a further rise in January (though that is far more crystal ball gazing).”
In straightforward terms, while Burnham’s tax reduction should lower bills, it takes effect at precisely the same time as the price cap rise, meaning most households will see their bills remain broadly unchanged rather than experiencing any noticeable reduction.
Nevertheless, the expert praised the new PM for prioritising electricity prices, noting it had been “strange” to witness previous Government policy attempting to encourage people to shift away from gas while gas prices typically remained lower than electricity costs.
Burnham’s tax reduction will be financed through scrapping the Digital ID programme, freeing up £1.8billion, the government says – although questions have been raised about this by critics. Any future, long-term measures will only be revealed at the next Budget, officials say.
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.”
The VAT reduction is anticipated to save households approximately £45 annually following the Ofgem price cap. All energy suppliers are expected to pass the VAT cut on to all customers, including those on fixed tariff, say officials.
