Andy Burnham to remove VAT from domestic electricity bills from October 1

Prime Minister Andy Burnham has announced a fresh tax cut to remove VAT from domestic electricity bills from October 1.

The 5 per cent VAT rate currently on household electricity will be reduced to 0 per cent in the Autumn.

As one of the first new changes made by the new Prime Minister, Mr Burnham said the measure would 'give people breathing space' and 'put more money in people's pockets.'

The lost tax revenue will be made up by the cancellation of the Digital ID Programme, which Mr Burnham said yesterday would save an estimated £850million this financial year.

The government has said the cut will reduce a typical annual bill by around £45 and lower inflation by a percentage point. It is the first of several major announcements expected today.

The new Chancellor of the Exchequer, the former Defence Secretary John Healey, said the announcement will 'provide some reassurance this winter.'

He added: 'For too long, too many people have struggled with the cost of living.

'Today's energy tax cut will give families some breathing room on bills, and provide some reassurance this winter.

'This measure is funded this year from cancelling the Digital ID programme, and it will help bring down inflation while supporting households in every postcode.'

The cost of living has been brought front and centre from the get-go of this brand new government.

Mr Burnham said in his very first speech as Prime Minister yesterday: 'Westminster has not been working for people for too long, with families struggling with the cost of living. That needs to change.

'I said I wanted to give people breathing space, and that’s what I’m announcing on my second day as Prime Minister.

'We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope.'

The new PM revealed his plans to scrap Keir Starmer's controversial £1.8billion digital ID scheme over the weekend.

Financial expert April LaRusse, who is head of investments specialists at Insight Investments, told BBC Radio 4's Today Programme the change was 'absolutely what the bond markets were looking for'.

She added: 'It's just an acknowledgement that if you're going to spend more money or make some changes, that the money needs to come from somewhere.'

But she said that the £45 annual savings made for people by the new measure is 'probably not enough by itself', though it was 'moving in the right direction'.

The VAT cuts will help some more than others - high electricity users will see the biggest drop in costs when the 5 per cent reduction kicks in.

This could mean larger homes see significant decreases in bills, or vulnerable people who use a lot of electricity for medical equipment.

The move to cut household electricity VAT has been floated through government before by Mr Healey's predecessor Rachel Reeves, but instead she reduced energy bills by removing a green levy and moving others onto general taxation.

Mr Healey's appointment to No. 11 came as a shock to Westminster and signals a likely move to increase defence spending.

The former Defence Secretary crashed out of the cabinet in June and issued an exoriating criticism of Starmer's defence spending pledges, which he said fell 'well short of what is required and 'could make the country less safe'.

But JPMorgan CEO Jamie Dimon warned Andy Burnham against raising taxes on banks to raise funding for spending projects.

He added that it could have adverse consequences for investment and he threatened changes could potentially affect his own company's plans for a new £3billion London headquarters.

This is a breaking news story; more to follow.