ANDY Burnham’s first policy as Prime Minister is to cut tax on household electricity bills, making a saving of around 90p a week, but financial experts warn it’s just a “token gesture” and is a “sticking plaster” on extortionate energy prices.
Millions of households across the UK will benefit from immediate action to help with their electricity bills this winter, the Prime Minister has announced as one of his first decisions in office.
Government is tackling rising bills with a tax cut to remove VAT from domestic electricity bills from October 1 in time to impact the next Ofgem price cap. This immediate action applies and is funded for this financial year.
The cost of this immediate action for this financial year – taken now, before the next price cap – is being funded from the cancellation of the (£1.8bn) Digital ID programme.
Cutting VAT on electricity bills is expected to take around £45 off the yearly Ofgem price cap in October.
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.
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.”
Sticking plaster
Michelle Lawson, Director at Fareham-based Lawson Financial, said it is just a “sticking plaster”.
She added: “Any saving is a saving and this will matter and be welcomed by the more vulnerable and those with lower incomes. These first few months for Burnham will be the test of his life so he needs to read the room and make the right moves.
“This is a start but not a solution to the greater problem as to why our bills are so high in the first place. The key is to address the root cause of the infection, not to put a sticking plaster on for now.”
Scott Gallacher, Director at Leicester-based Rowley Turton, said the small print shows it’s not as positive as the headline suggests.
He added: “Cutting hardworking families’ electricity bills is a great soundbite for the new Prime Minister. But the small print – a saving of just 90p a week – risks turning that soundbite into a political own goal.
“To turn around both the country and Labour’s re-election prospects, the new Prime Minister must deliver meaningful change, higher living standards and sustained economic growth – not just a series of small, short-term political wins.”
Token gesture
Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, said a £4 a month saving is not going to scratch the surface.
He added: “A whole £4 a month will just about afford a decent coffee at Starbucks or Costa. We really need to see significant change, not just a token gesture.”
Graham Nicoll, Financial Planner, Chartered FCSI at NCL Wealth Partners, questioned whether scrapping the Digital ID scheme is a good idea.
He added: “Helping households with electricity bills is a sensible short-term measure. For families already living close to their financial limits, any reduction in essential costs will be welcome, and it’s positive to see the new Government making decisive early decisions.
“The bigger question is whether cancelling the Digital ID programme is the best way to fund it. Digital ID has received a mixed reception, but international experience suggests it can improve efficiency, reduce fraud and lower long-term public sector costs. Once cancelled, those potential benefits may be harder to realise. The risk with decisions like this is that they prioritise immediate political impact over long-term economic value.
“Supporting households is important, but every pound of public spending has an opportunity cost. The real test is whether these choices strengthen the UK’s finances and productivity over the next decade, not just ease pressure this winter and win political favour.”
Photo by Markus Winkler on Unsplash.
