Andy Burnham Cabinet Tackles Cost of Living Crisis with VAT Cut 2026

The cost of living crisis remains a top priority as Andy Burnham urges his cabinet to examine all possible ways to ease financial pressure on households. On his first full day as prime minister, Burnham announced the removal of VAT from electricity bills from 1 October, cutting the electricity price cap by £45 at a total cost of £850m next year. This bold move is part of a broader strategy to make life cheaper for voters while adhering to existing borrowing rules.

Key Measures to Tackle the Cost of Living Crisis

Burnham described his administration as a “cost of living government” and asked every department to identify both big and small actions to reduce household expenses. Among the immediate steps is a reduction in the national bus fare cap from £3 to £2, a move expected to be formally announced on Wednesday. Additionally, the government plans to accelerate the rollout of a national care service, though this could require further funding before the next election.

Funding and Fiscal Constraints

The prime minister faces mounting pressure to explain how he will fund these pledges. Defence spending increases and the VAT cut are costly, and No 10 has ruled out using defence bonds to finance higher military spending. Chancellor John Healey, who resigned as defence secretary under Keir Starmer last month, must now navigate tight fiscal rules. Sources indicate that any new spending will need to be offset by savings elsewhere, sparking debate on borrowing versus taxation.

Comparison with Previous Government Approaches

Unlike Keir Starmer’s more cautious fiscal stance, Burnham’s cabinet is adopting a proactive, interventionist approach. The previous government relied on targeted energy price guarantees and one-off payments, whereas Burnham aims for structural changes like VAT removal. However, critics argue that such measures may increase the deficit unless matched by revenue increases or spending cuts elsewhere.

Key Takeaways from the New Policy Package

• VAT on electricity abolished – saves average household £45 annually on energy bills
• Bus fares slashed – from £3 to £2, easing transport costs for commuters
• National care service expedited – long-term reform but with immediate fiscal implications
• Borrowing rules maintained – no new debt for defence, forcing trade-offs

FAQ

FAQ

As the cabinet meets for the first time, all eyes are on the treasury to see how these ambitious plans will be reconciled with fiscal discipline. The coming weeks will reveal whether these measures genuinely ease the cost of living crisis or simply shift the burden to future budgets.