Andy Burnham is handing out a VAT cut this October (Image: Getty)
New Prime Minister Andy Burnham has been urged to go ‘further and faster’ with cost of living cuts after the SNP revealed households will only save an average of £3 a month from his new VAT cut on electricity.
Mortgage costs are set to rise on the back of instability triggered by the US’ resumption of hostilities in Iran, which has also seen the price of oil spike and hand more pressure to drivers at the pumps just in time for the school holidays.
Mr Burnham began his first week in office with a blitz of policy announcements including cutting 5% off VAT on household electricity for six months, a national £2 bus fare cap and a VAT cut for pubs and clubs.
But, with mortgage costs increasing and the price of oil rising to 100 US dollars a barrel, the SNP has urged the Prime Minister to do more to tackle the spiralling cost of living.
The SNP’s economy spokeswoman, Kirsty Blackman, told PA: “Andy Burnham must go much further and faster to help households with the soaring cost of living in the UK, and to reverse the damage done under the Labour government, which has left many people hundreds of pounds worse off.
“Families in Scotland will get no meaningful benefit from the changes announced so far, which are far too small to make a real difference.
“The decision to remove VAT from energy bills was welcome but it won’t come into effect until October – and it will only save average households about £3 a month, when energy bills are £600 higher than the Labour Party promised during the election.
“That’s barely enough to buy a pack of baked beans or a tin of Spam – let alone take any meaningful pressure off of household spending.
“Under the Labour Government, many families are living payday-to-payday, the number of people in poverty has risen by half a million and UK unemployment has increased to a five-year high.
“People are really struggling and we need to see much bolder action to ensure people are better off – not hundreds of pounds worse off.”
The new VAT cut will only apply in England, Scotland and Wales, not in Northern Ireland, thanks to Brexit trade deal agreements. Instead Northern Ireland will be handed cost of living funding by government.
Money expert Martin Lewis has warned that Andy Burnham’s big VAT cut on electricity bills is going to be swalloed up by new charges which will add an average of £93 to bills.
New Prime Minister Andy Burnham launched his premiership with a big announcement on energy bills on Monday. Mr Burnham announced a 6-month holiday on Value Added Tax for electricity bills from October 1 in a move which will save the average household £45 off their energy bills. It’s part of a raft of measures, along with the introduction of a £2 bus fare cap, that the new Labour party leader is pointing to aimed at curbing the cost of living crisis.
But money expert Martin Lewis has issued a warning over the cut, which he says will be erased by the next rise in energy bills set to take effect on the same day.
Thanks to the renewed conflict in the Middle East, the Ofgem price cap is, based on current forecasts, set to increase by an average of 5.1% from October 1 for households with typical use.
Martin tweeted: “I’ve just got the latest energy bill predictions. The average of 3 sources show the Price Cap rising 5.1% on 1 Oct – as the last week has seen very high wholesale rates. An annualised rise of £93 on a typical bill.
“If this happens it will wipe out any household savings from the VAT cut during that Price Cap period (those on fixes will still see a 4.8% reduction).”
Martin added that he is also planning to speak to the government about what happens to those who start a new fix after October 1 which will take them beyond the 6-month cut window.
The current plans state that energy firms should pass on the VAT savings, even to households on fixes, although this is not a legal requirement.
The move will be funded in part by scrapping Sir Keir Starmer’s digital ID project, which had been estimated to cost around £600 million-a-year over three years.
Funding for that scheme was due to have come from savings within existing departmental budgets, which will now be reprioritised to fund the VAT cut, the government said.
The energy price cap set by Ofgem is forecast by industry analysts to be £1,849 for a typical household, although the resumption of military action in the US-Iran war could push prices higher because of the disruption to global oil and gas markets.
New Chancellor John Healey 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.
“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.”
Officials said the VAT cut, from 5% to 0%, is estimated to reduce the consumer prices index measure of inflation by around 0.10 percentage points.
The policy will cost the Exchequer around £850 million in 2026/27.
For households with dual fuel bills the VAT cut will only apply to the electricity used, not gas, Downing Street said.