New UK govt tackles cost of living with energy tax cut

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Labour Party leader Andy Burnham talks to staff during a visit to The Passage Homeless Charity in London early on July 20, 2026, just hours before taking the role as the country’s new prime minister. (Photo by Christopher Furlong / POOL / AFP)

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Britain’s new Prime Minister Andy Burnham on Tuesday kickstarted his programme to ease the cost of living for millions of Britons by planning to remove tax on household electricity bills.

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The Labour leader, who took over as PM on Monday, said value added tax (VAT) would be taken off bills from October in a policy costing the government about £850 million ($1.143 billion) in the current UK financial year.

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“We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope,” Burnham said in a statement.

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The measure is a saving of about £45 a year on the average household bill, the government said.

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“The change supports the poorest households, who spend a higher percentage of their income on energy bills,” it added.

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The measure’s start date is due to coincide with an expected rise in the UK energy regulator’s price cap on electricity and gas prices, a consequence of the US-Iran war.

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The government said the tax cut would be funded by cancelling previous prime minister Keir Starmer’s plan for a digital ID scheme that would have cost the taxpayer £1.8 billion.

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The new PM has said he wishes to ease pressure also on small businesses, hit by the previous Labour administration’s tax hikes.

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At the same time, Burnham has pledged to respect the strict fiscal discipline seen under Starmer, whereby the government balances tax receipts with day-to-day state spending.

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– ‘Fiscal control’ –

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Official data Tuesday showed UK government borrowing dropped more than expected in June, handing a boost to new finance minister John Healey, who has replaced Rachel Reeves.

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Public sector net borrowing was £16 billion in June, down one third on a year earlier, the Office for National Statistics said in a statement.

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However, the ONS cautioned that “debt remains high by historical standards and close to the annual value of the entire UK economy”.

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Reacting to the data, Healey said “fiscal control is the first duty of any” finance minister.

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“And fiscal credibility is the bedrock for economic stability and for national security.”

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Healey piled pressure on Starmer last month when he announced he was stepping down as defence secretary in a stinging criticism of the government’s defence budget — and the Treasury, which he will now oversee.

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– Stable UK markets –

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UK markets were largely steady Tuesday having shown some signs of unease ahead of Healey’s appointment as chancellor of the exchequer.

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UK government bond rates had risen Monday after Burnham told British media there could be some “flexibility” allowed under the government’s balance-budget rules.

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“The prime minister and I have talked about how we will work in lockstep to meet the fiscal rules with a buffer against uncertainty and how we’ll make life more affordable for working people right across the UK,” Healey added.

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Separate official data Tuesday showed Britain’s unemployment rate unchanged at 4.9 percent.

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Burnham’s long-term goal is a “reindustrialisation” of Britain and mass building of municipal housing.

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While Britain’s economy has failed to take off since Labour returned to power two years ago, the International Monetary Fund forecasts it to outperform other major economies this year.

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