Martin Lewis issues verdict on new Andy Burnham tax rule change

Martin Lewis has shared his opinion about a major new tax rule change announced today by new Prime Minister Andy Burnham. The PM has announced one of his first decisions in office is to remove VAT from domestic electricity bills from October 1st, when the next Ofgem price cap will come into force.

The tax change is meant to support households with energy bills during the winter season. However, Martin Lewis revealed there may be a catch some people might not recognise.

The MoneySavingExpert said on X that the tax cut was a “very welcomed” step forward but added that people might not feel the difference in their pockets.

He added: “The energy Price Cap on 1 October for elec & gas is currently predicted to rise 3.1% which on typical bills is over £50 on an annualised basis (and that’s likely to be in the right ballpark as we’re a decent way through the analysis period).

“So the VAT cut gain over 6mths is mostly eaten up by that. Especially as the prediction is a further rise in January (though that is far more crystal ball gazing).”

In simple terms, Burnham’s tax cut is designed to reduce bills but because it is coming into force at the exact same time as the price cap increase, households will just see their bills stay exactly the same at best rather than noticing a drop in bills.

Martin continued: “Ultimately though it does mean people will pay less than they would’ve done without this.

“Yet it is going to need a lot more policy cost reductions, likely at the budget, for things to feel materially cheaper.”

However, the expert did still praise the new PM for focusing on electricity prices, adding that it’s been “strange” to see former Government policy focus on trying to get people to move away from gas while gas prices generally stayed below electricity costs.

Burnham’s tax cut will be funded by the cancellation of the Digital ID programme, marking £1.8billion. Any future, long-term measures will only be announced at the next Budget, officials say.

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 VAT cut is expected to take around £45 off annual bills after the Ofgem price cap. All suppliers are expected to pass the VAT reduction on to all customers, including those on fixed tariff.

New Chancellor of the Exchequer John Healey said: “For too long, too many people have struggled with the cost of living. 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.”