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Andy Burnham’s plan to cut VAT on electricity bills has descended into farce after Sir Keir Starmer’s closest ally claimed the policy was unfunded.
Mr Burnham began his first full day in No 10 by announcing that he would remove the 5 per cent levy from Oct 1, claiming he would use cash from Sir Keir’s scrapped digital ID scheme.
However, the policy began to unravel within hours when Darren Jones, who was chief secretary to Sir Keir, wrote on social media that the ID scheme was unfunded.
He said: “Good news that VAT will be cut on electricity bills. It’s a simple way for families to save a few quid, and to mechanically help to keep inflation that little bit lower.
“But the digital ID programme was unfunded. The Government will have to set out how it will pay for its new policies at the Budget.”
Reform UK said the Prime Minister’s “numbers don’t add up”, while the Conservatives said his policy was “falling apart already”.
Mr Burnham’s removal of VAT from Oct 1 is expected to take £45 off a typical home’s annual bill, based on Ofgem’s current price cap, and is the first announcement in a blitz of cost of living policies this week. It will cost £850m in 2026-27.
Sir Keir’s digital ID scheme, which Mr Burnham has scrapped, was expected to cost £1.8bn over three years.
However, the Institute for Government said no specific savings had been found to fund it.
Addressing his Cabinet for the first time on Tuesday, Mr Burnham suggested his newly appointed ministers would have to find cuts in their departments to fund cost of living measures that would give voters a sense that “help is coming”.
He added: “In these times in which we are living, we have to take a really hard look at what our priorities are. And if we’re to deliver on the cost of living and reducing the pressure, then we’ve got to be prepared to reprioritise.”
Mr Burnham said his party would have to be “boldly Labour, but prudently Labour”, adding: “We will seek to do more over the coming days, but we will always show how we are going to pay for it, what we are reprioritising and that will be a theme we will always come back to.”
John Healey, the new Chancellor, told ministers they would have to “look hard” at their budgets if new cost of living measures were to be affordable.
Jonathan Reynolds, the new Business Secretary, insisted that the cut to domestic bills was fully funded.
He told LBC’s Nick Ferrari: “The digital ID initial allocation in the Government scorecard, the pressure, the priorities the Government faces, was £1.8bn over three years.
“So by removing that pressure, that is money the Government would otherwise have to find, and I believe that was just the beginning for digital ID.
“The cost of this decision, by the way, to take VAT on domestic energy bills is £850m by the end of the financial year so it’s more than covered by removing that pressure. But it’s simply a statement of priorities.”
Robert Jenrick, Reform UK’s economic spokesman, accused Mr Burnham of trying to find savings to fund a tax cut from a spending commitment that was never accounted for.
He said: “Burnham’s numbers don’t add up. He says he’ll pay for the VAT cut by scrapping digital ID. One problem – that measure isn’t in the government books, so he’s not actually saving the Exchequer any money that’s been committed.
“It was forecast to cost £1.8bn, of which £600m was recurring spend. The VAT cut is going to cost almost £2bn. So even if the ID money had been found through savings elsewhere, as far as I can tell, three quarters of it is unfunded.
“That’s Burnhamomics. Where is the rest of the money coming from?”
Sir Mel Stride, the shadow chancellor, said: “We are only one day in and already Labour are playing fast and loose with the public finances. Labour should be doing what the Conservatives called for months ago – taking VAT off energy bills in a fully funded way by scrapping net zero subsidies.”
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Mr Burnham’s decision to remove the 5 per cent levy from electricity bills is part of a raft of new policies in the first weeks of his premiership.
The Prime Minister is expected to announce plans for more public control of Thames Water and drilling in the North Sea.
He said on Monday: “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.”
Government sources are also preparing to expand Labour’s plans to bring local bus services into public ownership, and capping fares at £2 in England following a model Mr Burnham pioneered in Greater Manchester.
On Monday, Mr Burnham announced that he would end long-term rough sleeping in England as he committed an additional £340m over three years. The Government said this would pay for 1,200 homes and “intensive support” for 3,000 people in England over a five-year period.
