---
title: "Burnham's first move: cut VAT on electricity, as June borrowing comes in lower"
description: "The new UK prime minister's opening cost-of-living measure is to cut VAT on household electricity from 5% to 0% from October, worth about £45 a year per household and £850m to the exchequer. It landed the same morning June borrowing came in below forecast, though the fuller fiscal picture is more mixed than either headline."
category: "Economy"
category_url: https://boursel.com/category/economy
author: "Marcus Feldman"
published: 2026-07-21T07:14:00.000Z
updated: 2026-07-21T07:14:00.000Z
canonical: https://boursel.com/article/burnhams-first-move-cut-vat-on-electricity-as-june-borrowing-comes-in-lower
tags: ["uk", "fiscal-policy", "vat", "public-finances"]
---
# Burnham's first move: cut VAT on electricity, as June borrowing comes in lower

The new UK prime minister's opening cost-of-living measure is to cut VAT on household electricity from 5% to 0% from October, worth about £45 a year per household and £850m to the exchequer. It landed the same morning June borrowing came in below forecast, though the fuller fiscal picture is more mixed than either headline.

Andy Burnham's first fiscal act as UK prime minister is a targeted tax cut on energy, and it arrived on a morning when the public finances also happened to look a little better. Both facts are drawn here from the government's own announcement and the official statistics, not from secondary reporting.

## The measure

The government will cut [VAT on domestic electricity from 5% to 0%](https://www.gov.uk/government/news/new-pm-cuts-tax-on-household-electricity-bills-to-give-breathing-space-on-cost-of-living), effective **October 1, 2026**.

The specifics matter for judging its size:

- **The saving:** around **£45 a year** per household, applied through the Ofgem price cap. Energy suppliers are expected to pass the reduction to all customers, including those on fixed tariffs.
- **The cost:** about **£850 million** in 2026-27.
- **How it is paid for:** by cancelling the Digital ID programme, which had a budget of £1.8 billion.
- **How long:** temporary, for this financial year only, with any further action left to the Budget.

Burnham framed it in cost-of-living terms: "We're taking immediate action to cut taxes on energy bills, put more money in people's pockets and bring back hope."

There is also a macro footnote the announcement itself makes: because energy is in the inflation basket, the cut is expected to reduce CPI inflation by about **0.10 percentage points** and RPI by around **0.14 points**. A tax cut that mechanically lowers headline inflation is not nothing to a central bank reading the same data.

## What £45 is, and is not

For a household, £45 a year is a little under £4 a month. It is real and it is universal, but it is modest against energy bills that run to four figures, and it is explicitly temporary. This is a first move and a signal of priorities, not a structural change to what households pay for power.

The funding choice is the more revealing part. Paying for the cut by scrapping a £1.8bn digital identity programme is a political statement as much as an accounting one: the new government is redirecting money from a predecessor's project into immediate household relief. That the £1.8bn saved exceeds the £850m cost also implies headroom the government has not yet allocated.

## The borrowing numbers, in full

The same morning brought June public finances data from the Office for National Statistics, and the headline was encouraging: [borrowing of £16.0 billion in June](https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/june2026), down £7.9 billion, or 33.1%, from £23.9 billion a year earlier, and £0.3 billion below the Office for Budget Responsibility's forecast.

The main driver was debt interest. Central government debt interest payable fell to £11.8 billion in June, a 31% drop from £17.1 billion a year earlier, as lower inflation reduced the cost of index-linked debt. That is the mechanism to watch: a large slice of UK debt is inflation-linked, so cooling inflation feeds directly into lower interest costs, which is also part of why a government would want a measure that nudges CPI down.

But a single good month is not the trend, and the fuller picture is more mixed:

- **Financial year to date** (April to June), borrowing is £57.6 billion. That is £3.7 billion lower than a year earlier, but **£2.7 billion above** the OBR's forecast of £54.9 billion. So the year so far is running ahead of plan, not behind it.
- **Public sector net debt** stood at **94.9% of GDP** at the end of June, up 0.4 points on a year earlier and, in the ONS's own words, "close to the annual value of the entire UK economy."

## Reading the two together

Put beside each other, the story is not "borrowing is falling, so there is room to cut taxes." It is more careful than that.

June was genuinely better than expected, driven largely by lower debt-interest costs that flow from lower inflation. But the year to date is still above the OBR's path, and debt is near 100% of GDP. Against that backdrop, an £850m temporary VAT cut funded by cancelling another programme is a modest, self-financed measure rather than a giveaway drawn from new fiscal space.

The signal for investors and for the gilt market is about direction and discipline. A new government's first move being small, funded by a reallocation, and pointed at a visible household cost, tells you something about how it intends to operate under a tight fiscal constraint. The real test comes at the Budget, where the choices are larger and the £2.7bn overshoot, and the near-100% debt ratio, will be harder to work around than a single month's good number suggests.

## What is verified

The measure: VAT on domestic electricity cut from 5% to 0% from October 1, worth about £45 per household, costing about £850m, funded by cancelling the £1.8bn Digital ID programme, temporary for this year. The finances: June borrowing £16.0bn, down 33.1% year on year and £0.3bn under forecast; year-to-date £57.6bn, £2.7bn over forecast; net debt 94.9% of GDP. Everything above is from the government's announcement and the ONS release. What happens next is a Budget question, and this piece does not try to guess it.