VAT to be cut from household electricity bills in October - Published VAT will be cut from household electricity bills, the government has announced, as part of new Prime Minister Andy Burnham's pledge to help with the cost of living. The reduction from 5% VAT to zero will come into effect on 1 October, saving a typical household about £45 a year. Ministers said it would be funded by savings from the cancellation of the digital ID programme, which was going to cost £1.8bn over the next three years.

The government estimated it will cost £850m this financial year. But Labour's Darren Jones, who was sacked as chief secretary to the prime minister on Monday, accused the government of announcing an unfunded tax cut. - What does an Andy Burnham-led government mean for your money?

- Published1 day ago - Three reasons why UK electricity prices are so high - Published18 hours ago Jonathan Reynolds, the new business secretary, said the cut would give people some "breathing space". He said it was funded until "the end of the financial year" in March 2027 and any changes beyond that would have to be announced in the next Budget. Suppliers have been told the VAT reduction should be passed on to all household customers, including those on fixed tariffs, as was the case when some charges were taken off bills in April.

The cut will take effect in England, Scotland and Wales, but equivalent funding would be given to Northern Ireland, which is regulated differently, the government said. The reduction could not be automatically be applied in Northern Ireland due to EU rules limiting the range of goods which can be sold without VAT. Following Brexit, England, Scotland and Wales are not bound by these restrictions.

Small businesses who qualify for the domestic energy VAT relief and are not registered for VAT, as well as charities and residential care homes eligible for the reduced rate, will also benefit. Cutting VAT is a relatively basic tool to reduce an energy bill - with larger households likely to save more as they use more electricity. However, some vulnerable households are also high electricity users, such as for running medical equipment.

Jones, who was also previously chief secretary to the Treasury, wrote on X, external that the Digital ID programme was unfunded. While praising the VAT cut as "good", he said "the government will have to set out how it will pay for its new policies at the budget". Conservative Shadow Chancellor Mel Stride also criticised the use of the Digital ID budget to fund the VAT cut.

"The cuts to the Digital ID card budget are not real because the money was never provided in the first place. "We are only one day in and already it is smoke and mirrors on the public finances." Reynolds told the BBC's Today programme a VAT cut to electricity bills would be funded through a "straightforward switch spend" redirecting money for digital ID. He said money for digital ID "would have had to have been found" and that scrapping the scheme removed "pressure" from the budget allowing the government to "give real help to people".

But the Office for Budget Responsibility said last November that digital ID would have to paid for out of savings from government departments and these had not yet been identified.