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In a decisive move to alleviate the financial burden on households, Prime Minister Andy Burnham has unveiled plans to cut VAT on domestic electricity bills and introduced a £2 cap on bus fares in England. These initiatives, part of his broader strategy to address the ongoing cost of living crisis, aim to provide families with much-needed relief as they navigate rising expenses.
Cutting VAT on Electricity Bills
Effective from 1 October, the government will eliminate VAT on household electricity bills, reducing the tax from 5% to zero. This change is expected to save the average household approximately £45 annually. Larger households will benefit even more, given their higher energy consumption. However, experts remind us that energy prices are still heavily influenced by the volatile wholesale gas market, which remains largely beyond governmental control.
Burnham has signalled his intent to bring key essentials under public oversight to improve affordability. This could involve the introduction of a social tariff, which would offer discounted rates to vulnerable customers, funded by higher bills for those more affluent.
Despite this promising news, concerns linger over rising energy debts. Recent figures reveal that unpaid energy bills now total a staggering £4.79 billion—a 15% increase from the previous year. Citizens Advice has noted that while average bills have decreased from their peak, they remain significantly higher than five years ago, leaving many families struggling to choose between heating their homes and covering basic living costs.
Transport Initiatives: A £2 Bus Fare Cap
In his early days as Prime Minister, Burnham has committed to reinstating a £2 cap on bus fares outside London, a move first implemented during his tenure as Mayor of Greater Manchester. This cap, which had previously risen to £3 in January 2025, aims to encourage public transport use as demand continues to recover from the pandemic’s impact.
Moreover, rail fares in England will also be frozen for the first time in three decades, extending to various commuter and flexible tickets until March 2027. This freeze is intended to ease the financial pressures on travellers and promote the use of public transport.
Tax Policies and Future Financial Planning
As part of his commitment to support households, Burnham has hinted at a review of the income tax threshold, potentially allowing individuals to earn more before being taxed. However, he has clarified that no immediate changes are set in stone, suggesting that any adjustments will be considered during the upcoming budget discussions.
Currently, income tax and National Insurance thresholds are frozen until April 2031, which means earners are subject to a higher percentage of their income being taxed as they make more. While Burnham has pledged not to raise the main taxes on income, National Insurance, and VAT, he has opened the door to other forms of taxation, possibly adjusting capital gains tax or altering property tax structures to maintain revenue.
Housing Affordability and Support for First-Time Buyers
Burnham has also expressed a commitment to addressing the housing crisis, acknowledging that insufficient affordable homes push many into the private rental sector, often relying on benefits to cover costs. He has promised to build more council homes as part of a long-term strategy to meet housing demands.
While some lenders are beginning to offer first-time buyers loans with lower deposit requirements, the crucial role of parental support, often dubbed the “Bank of Mum and Dad,” remains significant in the housing market. The overall cost of mortgages will heavily depend on the market’s perception of Burnham’s economic policies and their effectiveness in stabilising the economy.
Why it Matters
Burnham’s proposals represent a significant shift in the government’s approach to the cost of living crisis, with direct implications for household budgets and public transport accessibility. By targeting essential services and transport costs, he aims to create a more conducive environment for financial stability. However, the success of these initiatives will largely depend on effective implementation and the government’s ability to navigate external economic pressures. As families grapple with rising debts and costs, Burnham’s administration faces the challenge of delivering real change while managing the complexities of fiscal responsibility.
