Britain's new Prime Minister, Andy Burnham, has announced the abolition of VAT on household electricity bills from October 1st, marking his first measure to boost purchasing power since taking office. This decision aims to mitigate the impact of a potential rise in energy prices before winter. The government estimates that the average household will save around £45 per year, or nearly €53.
The cost of this measure is estimated at £850 million, or approximately €1 billion for public finances. To fund it, the government has confirmed the abandonment of the digital identity card project launched by the previous Keir Starmer government. This reform, highly contested in the UK, was expected to cost £1,8 billion over three years, thus freeing up budgetary resources for the new government.
A first measure to address the cost of living crisis
The elimination of VAT will only apply to electricity, not gas. Its implementation will coincide with the next review of the energy price cap set by the UK regulator Ofgem, which is responsible for regulating consumer tariffs based on wholesale market developments.
The government maintains that this decision complies with budgetary rules, despite market concerns about the evolution of British public debt. Andy Burnham indicated that any additional measures intended to support purchasing power or finance further reforms will be presented in the next budget, while promising to maintain rigorous management of public finances.
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