Politics & Governance
UK government plans electricity VAT cut as first cost-of-living move
Britain's new Prime Minister Andy Burnham began his cost-of-living programme on Tuesday by planning to remove value added tax from household electricity bills.
Burnham, the Labour leader who became prime minister on Monday, said VAT would be taken off bills from October. The government said the policy would cost about £850 million, or $1.143 billion, in the current UK financial year. Burnham said the government was taking immediate action to cut taxes on energy bills, put more money in people's pockets and restore hope.
The government said the measure would save the average household about £45 a year. It said the change would support the poorest households because they spend a higher share of their income on energy bills.
The measure is due to start at the same time as an expected increase in the UK energy regulator's price cap for electricity and gas prices. The source says the expected rise is a consequence of the US-Iran war. The government said the tax cut would be funded by cancelling former prime minister Keir Starmer's planned digital ID scheme, which it said would have cost taxpayers £1.8 billion.
Burnham has also said he wants to ease pressure on small businesses, which the source says were hit by tax increases under the previous Labour administration. At the same time, he has pledged to respect the strict fiscal discipline used under Starmer, under which the government balances tax receipts with day-to-day state spending.
Official data released Tuesday showed UK government borrowing fell by more than expected in June. The Office for National Statistics said public sector net borrowing was £16 billion in June, down by one third from a year earlier. The ONS also cautioned that debt remains high by historical standards and close to the annual value of the UK economy.
New finance minister John Healey, who replaced Rachel Reeves, said fiscal control is the first duty of any finance minister and that fiscal credibility is the basis for economic stability and national security. Healey had put pressure on Starmer last month when he stepped down as defence secretary and criticised the government's defence budget and the Treasury, which he now leads.
UK markets were largely steady on Tuesday after showing some unease before Healey's appointment as chancellor of the exchequer. UK government bond rates had risen on Monday after Burnham told British media there could be some flexibility under the government's balanced-budget rules. Healey said he and the prime minister had discussed working together to meet fiscal rules while keeping a buffer against uncertainty and making life more affordable for working people.
Separate official data on Tuesday showed Britain's unemployment rate was unchanged at 4.9 percent. Burnham's longer-term goals include what he calls the reindustrialisation of Britain and large-scale building of municipal housing. The source says Britain's economy has not taken off since Labour returned to power two years ago, but that the International Monetary Fund forecasts it will outperform other major economies this year.
Update
The tax cut is expected to cost about £850 million in the current UK financial year.
The government said the tax cut would be funded by cancelling Keir Starmer's proposed digital ID scheme, which it said would have cost £1.8 billion.
The government said the start date is due to coincide with an expected rise in the energy regulator's price cap caused by the US-Iran war.
Official data showed public sector net borrowing was £16 billion in June, down one third from a year earlier.
The Office for National Statistics cautioned that debt remains high by historical standards and close to the annual value of the UK economy.
John Healey replaced Rachel Reeves as finance minister and commented on fiscal control and credibility.
UK markets were largely steady on Tuesday after some unease ahead of Healey's appointment as chancellor.
Separate official data showed unemployment was unchanged at 4.9 percent.
Burnham's longer-term goals include reindustrialisation and large-scale municipal housebuilding.
The source says the IMF forecasts Britain's economy to outperform other major economies this year.
Source note: AFP news report published on 21 July 2026 at 07:47:38 UTC.
Update
Burnham announced a cut to value added tax on consumer electricity bills on Tuesday morning.
The 5 percent tax will be removed from October, trimming about £45, or $61, a year from bills.
The measure will initially be funded by cancelling a plan to introduce digital IDs.
Business minister Jonathan Reynolds called the announcement a strong first-day measure for the new cabinet.
Trump said he had a very good conversation with Burnham and posted that they discussed trade, military cooperation and demining the Strait of Hormuz.
Source note: AFP news report published on 21 July 2026 at 07:27:27 UTC.
Update
Burnham was set to hold his first cabinet meeting on Tuesday.
He held separate calls with US President Donald Trump and Ukrainian President Volodymyr Zelensky before appointing his ministerial team.
Trump said he had a very good conversation with Burnham and said they discussed trade, military cooperation and demining the Strait of Hormuz.
Burnham said his first instruction would be a pledge to end rough sleeping, and he also promised public procurement-led re-industrialisation, more public housing, decentralisation and stronger public control of life's essentials.
The report adds political and economic challenges facing Burnham, including weak growth, high borrowing costs, welfare spending, small-boat migration, energy prices linked to the US-Iran war and relations with Washington under Trump.
Opposition politicians have questioned Burnham's mandate and called for a snap election.
Source note: AFP news report published on 21 July 2026 at 05:12:56 UTC.
Update
Burnham held separate calls with US President Donald Trump and Ukrainian President Volodymyr Zelensky after taking office.
Trump said he had a very good conversation with Burnham and said they would meet in the not too distant future.
Trump said they discussed trade, military cooperation and demining the Strait of Hormuz.
Downing Street said Burnham reaffirmed Britain's resolute commitment to Ukraine in a call with Zelensky.
John Healey replaced Rachel Reeves as finance minister, Ed Miliband became foreign minister, Angela Rayner returned to government, Wes Streeting became defence minister and Shabana Mahmood was reappointed interior minister.
French President Emmanuel Macron congratulated Burnham and urged him to give new momentum to the partnership with the European Union.
Source note: AFP news report published on 20 July 2026 at 23:40:26 UTC.
Update
Andy Burnham removed several Keir Starmer loyalists from the cabinet, including Rachel Reeves and David Lammy.
John Healey was made finance minister, Ed Miliband foreign minister, Angela Rayner returned to government, Wes Streeting became defence minister, and Shabana Mahmood was reappointed interior minister.
Burnham promised a 10-year plan, help with cost-of-living pressures, action to end rough sleeping, re-industrialisation, more public housing and more decentralised power.
Burnham held calls with Donald Trump, Volodymyr Zelensky and several European leaders, including Emmanuel Macron.
A UK government spokesperson said Burnham underlined his commitment to defence and security in his call with Trump.
Downing Street said Burnham reaffirmed Britain's support for Ukraine in a call with Zelensky.
Emmanuel Macron congratulated Burnham and urged him to give new momentum to the partnership with the European Union.
Source note: AFP news report published on 20 July 2026 at 22:03:36 UTC.
Uncertainty notes
The source describes the energy price-cap rise as expected, not final.
The source gives the VAT cut as a government plan, with implementation due from October.
Source
AFP news report published on .