In a decisive start to his premiership, Andy Burnham has rolled out significant measures aimed at alleviating the financial pressures faced by households across the UK. Among his initial actions is the removal of VAT on domestic electricity bills, which will take effect from 1 October, and a new £2 cap on bus fares in England. These steps underscore Burnham’s commitment to easing the cost of living—a pressing concern for many families struggling to make ends meet.
VAT Relief on Energy Bills
Effective from October 1, the government will eliminate the Value Added Tax (VAT) on household electricity bills, a move Burnham claims will save the average family approximately £45 annually. This reduction is part of a broader strategy to provide what he describes as “breathing space” for consumers grappling with rising living costs. Larger households, which typically consume more energy, will benefit further from this tax relief.
However, it’s important to note that while cutting VAT is a straightforward approach to reducing energy costs, the overall price of electricity remains heavily influenced by the volatile wholesale gas market. Consequently, despite this temporary relief, long-term energy prices will continue to be dictated by factors largely outside the government’s control.
A New Approach to Transport Costs
In another key initiative, Burnham has announced a £2 cap on bus fares outside of London, set to commence in January. This cap represents a return to lower fares, after they were raised to £3 under the previous government. Burnham’s experience as the Mayor of Greater Manchester, where he successfully implemented similar fare reductions, positions him well to advocate for affordable public transport. While boosting bus travel demand, the backdrop of recovering passenger numbers post-COVID adds complexity to this initiative.
In addition to local transport, the government has frozen rail fares for the first time in three decades, maintaining prices until March 2027 for various commuter routes, a move aimed at easing the financial burden on daily travellers.
Housing and First-Time Buyers Support
Addressing the ongoing housing crisis, Burnham has highlighted the necessity of increasing the supply of affordable homes. He aims to tackle the rising costs of renting and buying, acknowledging that without sufficient affordable housing, many will continue to rely on financial assistance through the benefits system. His government plans to construct more council homes as part of an ambitious housing target, though sceptics question whether simply increasing supply will lead to lower prices.
For first-time buyers, there are indications that lenders may ease deposit requirements, but the reality remains that many still depend heavily on familial support—often referred to as the “Bank of Mum and Dad”—to secure home loans. Ultimately, mortgage affordability will hinge on public confidence in Burnham’s economic policies, particularly as the market reacts to his administration’s direction.
Navigating Tax Policies
When it comes to taxation, Burnham has hinted at a potential rise in the threshold for income tax, allowing individuals to earn more before incurring tax liabilities. However, he has tempered expectations by stating that no immediate changes will be made, with any adjustments likely to be discussed during the forthcoming budget.
Under current policy, income tax and National Insurance thresholds are frozen until April 2031, meaning that as wages increase, a greater portion of earnings will be taxed. This situation poses a challenge for the government, as reversing this trend would require finding alternative funding sources or increasing other forms of taxation.
Burnham’s administration remains committed to the Labour manifesto, which promises not to raise the primary taxes of income, National Insurance, and VAT. However, discussions regarding other tax reforms, such as adjustments to inheritance tax or the introduction of new property taxes, could emerge as the government seeks to balance its budgetary needs with the financial relief it aims to provide.
Why it Matters
Burnham’s initial policies signal a significant shift in the government’s approach to the cost of living crisis. By prioritising reductions in energy bills, transport costs, and housing affordability, he aims to directly address the financial strain faced by many households. However, the success of these measures will depend not only on their implementation but also on how they interact with external economic pressures and the broader political landscape. As Burnham navigates these challenges, the impact on the everyday lives of citizens will be closely monitored, making it essential for his administration to remain adaptable in the face of evolving circumstances.