Andy Burnham made the announcement days after taking over at Number 10 (Image: Getty)
New Prime Minister Andy Burnham announced a major discount on energy bills as one of his first decisions in office since taking over at Number 10 this July. He claims that cutting electricity costs will give people some breathing space and help with the cost of living over the cold winter months.
Announcing the changes on July 21, Prime Minister Andy Burnham said: “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. We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope.”
The new Labour Party leader claims that cutting VAT on electricity bills is expected to take around £45 off the yearly Ofgem price cap in October. This is on top of the £150 removed from bills at the last Budget.
However, finance expert Martin Lewis has said that the ‘good news’ is not going to translate into the deal most people are expecting later this year.
Speaking on Instagram, Martin said: “The new Andy Burnham administration has just announced on October 1, for six months, it’s going to get rid of VAT on domestic electricity bills. This is good news.
“It means a saving, everything else remaining equal. But everything else isn’t going to remain equal.”
Martin explained that a cut in domestic electricity will see all customers pay less, whether they’re on a fixed or variable tariff. But, there’s a major catch that he says people shouldn’t overlook.
He said: “The price cap, which is what 60% of people in England, Scotland and Wales are on, moves every three months and of course it’s going to move on October 1.
“Now the prediction for the October price cap is pretty tight right now, as we’re most of the way through the assessment period, and it is likely to rise. The current prediction is 3.1%,” he added.
So, while homes will have 4.8% taken off electricity bills, they are still expected to take 3.1% off both gas and electricity bills, which Martin suggested was “equivalent over a year to around £50”.
He said: “Let’s do it for six months and say it’s £25. So you’ve got £45 coming off bills, but £25 going on to bills. On October 1, it’s looking like the actual saving over six months would be £20.”
After this, the price cap is adjusted again in January 2027, and forecasts claim this could add “about 2%” to bills, according to Martin. He said: “If that were to happen, it would negate all the benefits of the VAT cut.”
Martin said: “We need to be straight, you are still saving compared to what you would have been if this cut hadn’t been made. But no one is really going to feel very much change in their pocket from this, and it isn’t a huge amount.
“While I think it’s a good totem, in practical terms, it isn’t enough to make you feel a change in energy bills.” The finance expert claims that this move by the new PM is ” a small movement in something that varies a lot”.