A 'Respite' Worth £45
The first major initiative unveiled by the new occupant of 10 Downing Street was the abolition of VAT on household electricity bills from 1 October. However, a number of experts and social media users have questioned where the money to fund the measure will come from.Immediately after taking office, Prime Minister Andy Burnham announced that the 5 per cent VAT rate on domestic energy bills would be scrapped. According to Chancellor John Healey, the change will give families “some breathing space” with their household bills. Government estimates suggest that a typical household will save around £45 a year.
The savings are to be funded from the public purse, at an estimated cost of around £850 million. The government says this will be financed by scrapping the Digital ID scheme, which had been allocated funding of £600 million a year. Shadow Chancellor Mel Stride was quick to point out that the annual cost of the Digital ID programme had never been properly funded in the first place. The same point was quickly picked up on social media. The he same point was quickly picked up on social media.
An Unclear Funding Source
The Office for Budget Responsibility had previously reported that the £1.8 billion Digital ID programme was expected to be financed through savings in other government departments, although the source of those savings had yet to be identified. Conservative Party leader Kemi Badenoch argued that funding a new policy from a budget that is already in deficit makes little sense. The Burnham government will now have to identify an alternative source of funding if it is to deliver on this pledge.
The Savings May Be Short-Lived
A number of users argue that the money could have been spent more effectively elsewhere.
The Redditch Standard quotes MoneySavingExpert founder Martin Lewis, who believes that most households are unlikely to notice any meaningful benefit from the promised saving. Ofgem’s energy price cap is expected to rise by around 3.1 per cent in October, potentially wiping out the gain from the VAT cut. Meanwhile, the government’s economic spokesperson, Christie Blackman, told The Herald that these savings are “a drop in the ocean” compared with household costs, which are around £600 higher than Labour promised during the last election.