By Elizabeth Piper and Kate Holton
LONDON, July 21 (Reuters) – British Prime Minister Andy Burnham said on Tuesday he would cut taxes on electricity bills in his first attempt to ease a lengthy cost-of-living crisis that has angered the public and helped stoke political instability.
In his second day in his new role, Burnham said his government would remove the value-added tax from domestic electricity bills from October 1, cutting around £45 from the average annual bill of around £1,862 that households pay.
With bond investors watching closely for how any fiscal support would be paid for, he said the move would be funded by savings from the cancellation of a £1.8 billion ($2.42 billion) digital ID programme, which he announced on Sunday.
“We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope,” he said in a statement, having pledged to give people more “breathing space” in their lives.
BURNHAM TRIES TO MOVE QUICKLY TO OFFER SUPPORT
The energy announcement is designed to show that Burnham will move quickly to improve living standards after years of stagnation.
But in the first sign his call for unity in the governing Labour Party might fall flat, an ally of former prime minister Keir Starmer, Darren Jones, said the digital ID scheme was unfunded, questioning whether the new leader had the money to cover his policy move on energy bills.
“The government will have to set out how it will pay for its new policies at the budget,” he said on X.
Energy bills have been one of the main drivers of Britain’s cost-of-living crisis after the wholesale gas price, which heavily influences British electricity prices, surged after Russia’s full-scale invasion of Ukraine in 2022.
The Conservative government at the time spent billions of pounds to shield households through an energy price guarantee. But while prices eased from mid-2023, they remain up to 60% higher than before the energy crisis. They have also increased in recent months due to the Iran war.
The End Fuel Poverty Coalition welcomed the move as a sign of positive intent but added: “It does not address the scale of what households are facing, with millions still left paying an unaffordable share of their income on energy and record levels of energy debt built up over successive winters of high bills.”
REVOLVING DOOR OF LEADERS
Burnham has vowed to kick off a programme he believes can turn Britain around, hoping a bolder agenda can win back voters to the governing Labour Party and fight a challenge from the populist Reform UK, led by Brexit campaigner Nigel Farage.
There is a lot at stake.
Dubbed the “King of the North” for his dogged defence of the northwestern English area of Greater Manchester when mayor, Burnham is the most popular leader of Britain’s main political parties and has overwhelming support in Labour.
But Britain’s revolving door of prime ministers over the past decade has underlined how quickly parties can move against leaders who are not seen as delivering for voters, and Burnham will have to move quickly to stamp his authority on the government.
He wants to hit the ground running.
In his first speech as prime minister on Monday, Burnham said his first ambition was to end rough sleeping in Britain, but also that he wanted people to feel the change in government in their pockets quickly.
MARKETS WATCHING CLOSELY
He is also expected to look at possible caps to bus fares – something he did in Manchester – and other measures, to back up his assertion that “I will put the care of people at the heart of everything I do”.
“It won’t solve everything, it won’t take all of the pressure off,” he told reporters. “But it just shows the direction of travel and … about helping them out.”
Markets will be listening keenly to how Burnham and his unexpected pick for finance minister, the former defence secretary John Healey, plan to finance any further support, after borrowing costs rose on Monday, pushing 30-year gilt yields to a two-month high.
Some investors were unsettled by Burnham’s remarks that he planned to use “any flexibility” within existing fiscal rules.
Showing the limited room for manoeuvre, the International Monetary Fund had praised the previous government for not introducing broad, untargeted energy subsidies in response to the Iran conflict, while the OECD has urged Britain to reduce – rather than expand – VAT exemptions to bolster tax revenue.
(Reporting by Elizabeth Piper; additional reporting by David Milliken and Paul Sandle; Editing by Kate Holton, Alexandra Hudson and Alison Williams)
