Burnham's first spending row: Business Secretary hails energy bills tax cut despite concerns over funding

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The Government said on Tuesday it will tackle rising bills by removing VAT from household electricity bills from October 1, in time to impact the next Ofgem price cap.

Speaking to Nick Ferrari at Breakfast, Mr Reynolds said removing VAT from household electricity bills provides “breathing space” amid the cost of living crisis.

Andy Burnham announced the £850 million tax cut on Tuesday in his first significant policy as Prime Minister.

“That’s going to be a saving that will take on average £45 off the annual price cap for people’s energy bills and it’s a statement of priorities and it’s funded by not proceeding with digital ID so we don’t have to have any additional taxes or borrowing to do that,” Mr Reynolds told Nick.

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He added: “We're not saying it's everything. We know people going into winter will be thinking ‘I’m worried about my energy bill’ but as a statement of what government thinks is important, of the decisions it can make here and now, I think it is a significant one.”

But Darren Jones, former chief secretary to the prime minister, has said the digital ID project was unfunded and questioned how the VAT cut would be paid for.

He wrote on X: “Good news that VAT will be cut on electricity bills.

“It’s a simple way for families to save a few quid, and to mechanically help to keep inflation that little bit lower.

“But the DigitalID program was unfunded. The government will have to set out how it will pay for its new policies at the budget.”

Reposting Mr Jones' remarks, Tory leader Kemi Badenoch said on X: "I welcome action to cut the cost of energy which is too high because of Ed Miliband’s policies.

"But the question is how will Burnham fund all his new policies without putting up taxes or borrowing even more. Until yesterday, Darren Jones was in charge of DigitalID and the Chief Secretary to the PM.

"So if he tells people the DigitalID programme was unfunded, he will know what he’s talking about. It’s only one day into Burnham’s Government and already the explanations are falling apart.

"You can’t use the funding from an unfunded programme to pay for cheaper bills.

"Conservatives have set out our fully funded Cheap Power Plan that will cut family energy bills by £200, including by cutting their VAT. We are paying for that by getting Britain drilling and scrapping Net Zero policies. John Healey should take a look at it and steal our ideas."

It comes after Chancellor John Healey said the cut would be funded by cancelling the £1.8 billion Digital ID programme.

“For too long, too many people have struggled with the cost of living,” he said.

“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.”

Cutting VAT on electricity bills is expected to take £45 off the yearly price cap in October - this is on top of the £150 removed at the last budget.

Energy suppliers will pass the VAT reduction on to all customers. Small businesses, charities, and residential care homes will also benefit.

The Government said it has acted to provide immediate support for Brits after the Iran war and Russia's invasion of Ukraine pushed energy bills up

The Prime Minister 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.”

In his first address to the nation as Prime Minister, Mr Burnham pledged the biggest change to British politics in 40 years, and said he would deliver “a new political model and a new economic model” for Britain.

Among the measures Mr Burnham is exploring to help hard-pressed households with the cost of living are rent controls, support for energy bills and capping the cost of bus fares.

"We’re looking at measures that could make a difference this year. So we are looking at all of those things, but we’ll make more announcements tomorrow,” he told reporters in Downing Street’s rose garden on Monday.