The United Kingdom government will reduce the Value Added Tax (VAT) on household electricity bills starting October 1, as part of new Prime Minister Andy Burnham's initiative to alleviate the cost of living pressures. The VAT rate will be lowered from 5%, a move expected to save the average household approximately £45 annually.
This fiscal measure is to be financed by savings generated from the cancellation of the digital ID program, which had an estimated cost of £1.8 billion over the next three years. The VAT reduction itself is projected to cost the government £850 million in the current financial year.
Chancellor John Healey stated that the announcement aims to "provide some reassurance this winter." The decision follows Burnham's assumption of the prime minister role on Monday, where he pledged to "bring back hope" to the nation. Healey, formerly the defense secretary, was appointed chancellor as part of Burnham's new cabinet. He succeeds Rachel Reeves, who served in the role since the Labour party's significant election victory in 2024.
The cabinet is scheduled for its inaugural meeting later on Tuesday.