UK: New government to scrap domestic electricity tax
The British government aims to reduce households’ energy costs by scrapping VAT on energy bills, funding the measure through cuts to a digital programme, but the move is raising political concerns
(Il Sole 24 Ore Radiocor) - According to Downing Street, the measure will save an average household around £45 on its annual energy bill and will cost around 850 million in 2026–2027. The Prime Minister has given assurances that the measure will be fully funded by scrapping the digital identity scheme, which is expected to generate savings of 1.8 billion pounds over the next three years. VAT on domestic energy bills currently stands at 5 per cent. According to government estimates, the reduction in VAT on electricity will lower inflation, as measured by the Consumer Price Index, by around 0.10 percentage points. Burnham is considering further measures to tackle the cost of living, including a possible cap on bus fares and a rent freeze, but he has made it clear that it is still too early to say whether these will be included in a wider package.
Downing Street has given assurances that any new measures will be set out in the Budget Bill, fully funded and compatible with the government’s fiscal rules. The measure announced by Burnham was promptly criticised by Darren Jones, a former minister in Keir Starmer’s government, who was ousted from the new cabinet yesterday. According to Jones, the tax cut announced today is “unfunded” because no funds had yet been allocated for the digital identity programme. The government, he said, will therefore have to explain in the forthcoming Budget Bill how it intends to fund the new policies.
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