Andy Burnham's Cost of Living Crisis Plan: VAT Cut & More 2026

The cost of living crisis is at the heart of Andy Burnham's new government agenda as he urges his cabinet to explore all possible measures to ease financial pressures on households. In his first full day as prime minister, Burnham announced a plan to remove VAT from electricity bills, reducing the price cap by £45 annually, at a cost of £850 million next year. This move is part of a broader strategy to make life more affordable for voters, with additional policies expected soon.

Key Measures to Tackle the Cost of Living Crisis

Burnham's cabinet is focusing on several immediate actions. The most prominent is the VAT removal on electricity bills, effective from October 1. This will lower the energy price cap and provide direct savings for millions of households. Another significant measure is the reduction of the national bus fare cap from £3 to £2, a one-third decrease aimed at cutting commuting costs. The prime minister also hinted at accelerating the rollout of a national care service, though this may require additional funding before the next election.

How the VAT Cut Affects Your Bills

The removal of VAT from electricity means that the current 5% rate is eliminated. For a typical household, this translates to an annual saving of around £45. The government plans to fund this through existing borrowing rules, avoiding any increase in national debt. Below is a comparison of average electricity costs before and after the policy change:

This table shows a clear financial benefit for consumers, though critics argue that more structural reforms are needed to address the root causes of high energy costs.

Additional Policies Under Consideration

Burnham has asked each cabinet department to identify both large and small ways to ease the cost of living crisis. Expected proposals include a temporary freeze on fuel duties, expanded free school meals, and increased housing benefit rates. The government is also reviewing the energy price cap mechanism to ensure long-term stability. However, the chancellor has ruled out using defence bonds to fund higher military spending, signaling a cautious approach to fiscal policy.

Key Takeaways from the Announcement

• VAT removed from electricity bills from October 1, saving households £45 per year.
• Bus fare cap reduced from £3 to £2, cutting transportation costs by a third.
• National care service rollout accelerated, though cost implications remain unclear.
• Funding will stay within existing borrowing limits, avoiding new debt.
• Further measures expected from all departments to tackle the cost of living.

Funding Questions and Political Reactions

Opposition leaders have questioned how Burnham will pay for these pledges without breaking fiscal rules. The prime minister insists that the VAT cut is fully funded through efficiency savings and reallocated budgets. Last month, his new chancellor John Healey resigned as defence secretary over disagreements on military spending, highlighting the tensions within the cabinet. Despite these challenges, Burnham aims to present a united front, describing his administration as a “cost of living government” committed to delivering tangible relief.

FAQ

As the cabinet continues deliberations, households can expect further announcements in the coming weeks. The focus remains on delivering immediate relief while maintaining fiscal responsibility. Stay informed on how these changes affect your budget by following our updates.