Burnham Details £850 Million Energy VAT Cut Funding as UK Faces £4.7 Billion Defence Gap
Updated
Updated · The Guardian · Jul 21
Burnham Details £850 Million Energy VAT Cut Funding as UK Faces £4.7 Billion Defence Gap
3 articles · Updated · The Guardian · Jul 21
Summary
An £850 million plan to scrap 5% VAT on household energy bills for six months from Oct. 1 would cut a typical annual bill by £45 and trim headline inflation by 0.1 percentage points.
Downing Street says the tax cut will be funded by cancelling Keir Starmer’s £1.8 billion digital ID programme, but the IFS and former minister Darren Jones say the numbers still leave about £850 million of unspecified savings to find.
Defence is the bigger fiscal test: Burnham’s first budget must find an extra £4.7 billion over five years, while the Treasury says another £10.3 billion will need to be reallocated across departments to meet existing commitments.
Burnham has also floated but then cooled on unfreezing the £12,570 personal allowance, a move the Resolution Foundation says would cost £3.7 billion by 2029-30, as economists argue it is poorly targeted.
Those choices come as fiscal headroom has shrunk from £23.6 billion at the spring statement to about £10 billion, leaving investors wary of more borrowing even for housing, transport and other capital investment.