Prime Minister Andy Burnham has instructed his Cabinet to prioritize fiscal responsibility, emphasizing the need to demonstrate how policies will be funded. This directive comes just hours after the government announced a plan to cut VAT on electricity bills by 5% for six months, an initiative estimated to cost £850 million, which critics argue is unfunded.
During the first meeting of his new Cabinet, Burnham stressed the importance of fiscal rules, stating, "Always we will show how we are going to pay for it, what we are reprioritising. That will be a theme that we will always come back to." However, the funding for the energy bill cut has been linked to the cancellation of Keir Starmer's Digital ID scheme, a plan that, according to former Cabinet member Darren Jones, had no specific funding earmarked. This leaves new Chancellor John Healey with the task of finding the necessary funds, potentially at the upcoming Budget, adding pressure to public finances.
The energy bill reduction, intended to provide households with approximately £45 in savings over the six-month period, has drawn mixed reactions. While welcomed by some as a measure to ease the cost of living, experts like MoneySavingExpert founder Martin Lewis caution that the benefit could be diminished by projected increases in energy prices. He noted that the planned VAT cut's impact might be largely offset by an anticipated rise in the energy price cap and market volatility linked to geopolitical events. The VAT cut, specifically on domestic electricity, is enabled by the UK's departure from the European Union, as the policy cannot be applied in Northern Ireland under EU regulations.
Burnham's administration has also faced scrutiny over other spending commitments. These include a substantial commitment to council house construction, a national social care service, and an announcement of £340 million to address rough sleeping, all made without immediate clarity on their funding sources. Plans for a £2 cap on bus fares and a 20% cut in business rates for the hospitality sector are also anticipated.
The composition of Burnham's Cabinet has also generated discussion. Research indicates that a quarter of the new Cabinet members were privately educated, a notable increase from the previous administration. Prominent appointments include Louise Haigh as First Secretary of State and Chancellor of the Duchy of Lancaster, and Angela Rayner returning to her previous role as Housing Secretary. Ed Miliband has been appointed Foreign Secretary, a move that could lead to friction on issues such as net zero and migration.
Opposition parties have criticized the government's initial fiscal announcements. The Conservative Party leader Kemi Badenoch stated that the explanations for the funding were "falling apart on day one," questioning the use of funds from an unfunded program. Liberal Democrat leader Ed Davey suggested the cuts did not go far enough, while financial experts like April LaRusse of Insight Investments called the £45 annual saving insufficient on its own, despite acknowledging it as a step in the right direction.
Economists and market analysts are closely monitoring the new government's fiscal approach, particularly given the UK's existing national debt. JPMorgan CEO Jamie Dimon has cautioned against increasing taxes on banks, warning of potential negative consequences for investment. Official figures released recently showed public sector borrowing remaining above forecasts, highlighting the fiscal challenges ahead for Burnham's government.