Andy Burnham’s first full day as Prime Minister has been overshadowed by anger within his own party after it emerged that his flagship pledge to cut VAT on domestic energy bills may not be properly funded.
The new PM confirmed the electricity bill discount, worth 5 percentage points off VAT from October, framing it as a way to give hard-pressed households some financial breathing space. Downing Street says the roughly £850 million cost will be covered by scrapping the digital ID card scheme inherited from the Starmer government.
But that explanation was quickly challenged by Darren Jones, one of eleven ministers removed from Cabinet in Burnham’s overnight reshuffle. Jones argued that the digital ID programme had never actually had a funding line attached to it in the first place, meaning the new Chancellor, John Healey, would effectively have to find fresh money to cover the VAT cut at the upcoming Budget. While welcoming the energy bill move as a straightforward way to ease pressure on families and nudge down inflation slightly, Jones was clear that Number 10 still needs to explain how its wider policy programme will be paid for.
Analysts have also cast doubt on how much difference the cut will actually make. The saving is estimated at around £45 per household, but that could be wiped out by rising wholesale prices, with Ofgem’s price cap expected to climb by roughly £50 in October, and tensions in Iran adding further upward pressure on energy markets.
There’s also an irony noted by critics: the VAT reduction is only possible because the UK is outside the EU, a stance Burnham himself opposed as recently as this summer when he was pushing for closer alignment with, or even a return to, the bloc. Because Northern Ireland remains tied to EU VAT rules, the cut cannot be extended there. Former Chancellor Rachel Reeves had previously resisted a similar VAT cut, on the grounds that it disproportionately benefits wealthier households in larger, higher-consumption homes.
The funding row comes as Burnham finalises his top team, having completed all Cabinet appointments late on his first night in office. Backbench MP Oliver Ryan drew attention on social media to what he called the “march of the Northern Queens,” celebrating the elevation of Louise Haigh to a de facto deputy prime minister role, alongside returns to government for Angela Rayner and Lucy Powell, and posts for Anneliese Midgley, Lisa Nandy and Bridget Phillipson.
Questions are mounting over the affordability of Burnham’s broader agenda as he shifts Labour further left. Alongside the energy VAT cut, he has pledged what would be the largest council house building drive in British history, to be led by Rayner, plus a new national social care service. On Monday he also announced £340 million in extra funding aimed at ending rough sleeping within three years, again without detailing the funding source. A £2 cap on bus fares and a 20% cut to hospitality business rates are both expected to be unveiled in the coming days.
The scale of new spending commitments has unsettled financial markets already wary of further government borrowing, given the UK’s already substantial debt burden. There was some relief yesterday, however, when Burnham chose not to install Ed Miliband, seen by some as holding hardline left-wing economic views, as Chancellor. Conservative critics said the new government was already showing signs of strain on its very first day.
Other developments from Burnham’s first day in power include:
- Sutton Trust research showing a quarter of the new Cabinet attended private schools, up sharply from 8% under Starmer, while 41% were educated in the North compared with 34% from London or the South East
- The eleven sacked Cabinet ministers reportedly set to receive payoffs totalling around £220,000 between them
- New labour market data showing private sector wage growth falling behind inflation, even as public sector pay continues to rise
- Fresh June figures confirming the UK’s tax burden continues to climb
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