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New prime minister Andy Burnham has announced that the government will cut VAT (value added tax) from electricity bills as part of his campaign to lower the cost of living. Some think he may cap bus fares at £2, too.
His government’s new chancellor, John Healey, who replaced Rachel Reeves on Monday, said: “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.”
On X, Money Saving Expert’s founder and executive chair, Martin Lewis, has spoken about how he thinks the new PM should tackle the cost of living.
“For me, there are three main areas,” he shared in a video.
These are:
1) The cost of living
This is “pretty obvious”, the money guru said. He claimed: “We’ve had high inflation for a long time, and though inflation has come down now, that just means prices aren’t rising as quickly as they were”.
In other words, though price hikes have slowed, we may still be paying more than previous years due to former periods of high inflation. Costs aren’t rocketing up as fast, but they’re not lowering either.
“So, things feel expensive,” Lewis continued, adding that cutting VAT from electricity bills is a “totem of help”.
However, he said: “It’s only a small amount... there needs to be more policy costs coming off energy bills. We need to look at banning mid-contract price hikes on mobile and broadband [services].”
Lewis also addressed water bill hikes, which have risen by 40% in some areas, and high mortgages and rents.
2) Intergenerational problems
“What I mean by this is basically, young people being shafted,” the expert said. “The job market is tough, AI is going to make that even more difficult.”
Job vacancies fell to half their 2022 levels in the three months leading to May 2026.
Lewis also stated that “the current government is making it worse for the millions of people with outstanding Plan 2 student loans... it’s going to freeze the repayment threshold from April”.
When Plan 2 student loans were announced, the government said the £21,000 earnings threshold would be updated every year in line with earnings from 2016 (in other words, it’d take a higher wage until the government asked you to pay your loan back).
But this was frozen from 2016 to 2018, and again from 2021 to 2025, and in last year’s budget, it was announced it would be frozen again for three years.
“If you freeze this repayment [and] people’s earnings are going up, then they’re paying more back,” Lewis said, claiming: “It is a breach of the original promise”.
He said he hopes the new government overturns the freeze as one of its first acts.
Calling the entire student loan system “broken”, Lewis continued: “the level of interest needs to be cut, repayment [thresholds] need to be higher”.
The money pro pointed out that the amount of money that qualifies someone for a maintenance grant has stayed the same since 2008, even though costs have gone up.
3) The ‘helped and helped-nots’
Lewis called discussions around “who do you help and who don’t you help when it comes to the cost of living” the “biggest of all the challenges”.
He said that some of the “visceral anger” he perceived towards former PM Keir Starmer comes from people who feel they’ve been “left out of help”.
“They are just above getting benefits, just above qualifying for social tariffs, just above qualifying for pension credit,” he said. “They’re on low to low-middle incomes, and they haven’t got any help.”
Lewis said that Burnham faces a “real challenge” in deciding “exactly where to draw the line” on support.
