Key facts
- Prime Minister Andy Burnham announced a VAT cut on domestic electricity bills effective October 1.
- The funding for the VAT cut is intended to come from the cancellation of the Digital ID program.
- The OBR estimated the Digital ID program's costs but stated no specific funding had been identified.
- Darren Jones, former chief secretary to the prime minister, raised doubts about the funding for the VAT cut.
- The VAT cut is expected to reduce electricity bills by an average of £45 per year.
Prime Minister Andy Burnham has announced a cut to VAT on domestic electricity bills, effective October 1, as a measure to ease the cost of living. This tax cut, expected to save households an average of £45 annually, is intended to be funded by the cancellation of the government's digital ID scheme. However, doubts have been raised regarding the financial viability of this funding plan.
Burnham stated that scrapping the digital ID project would free up resources for the VAT reduction. The digital ID scheme was estimated to cost £1.8 billion over three years. Yet, the Office for Budget Responsibility (OBR) has indicated that the digital ID project was unfunded, with no specific financial provisions identified for its estimated £600 million annual cost. Darren Jones, who was recently removed as chief secretary to the prime minister, publicly questioned how the VAT cut would be financed, emphasizing that the government would need to outline its funding strategy at the upcoming budget.
Despite these concerns, newly appointed business secretary Jonathan Reynolds defended the decision, characterizing it as a 'straightforward switch spend' and a statement of priorities. Chancellor John Healey added that the energy tax cut would offer families some relief on their bills. Burnham's administration has pledged to implement further cost-of-living measures, with detailed costings expected at the budget later this year.