Martin Lewis warns Andy Burnham VAT cut ‘wiped out’ with new £93 bill charges | Personal Finance | Finance

Money expert Martin Lewis has warned that Andy Burnham’s big VAT cut on electricity bills is going to be ‘wiped out’ by new charges which will add an average of £93 to bills. New Prime Minister Andy Burnham launched his premiership with a big announcement on energy bills on Monday. Mr Burnham announced a 6-month holiday on Value Added Tax for electricity bills from October 1 in a move which will save the average household £45 off their energy bills. It’s part of a raft of measures, along with the introduction of a £2 bus fare cap, that the new Labour party leader is pointing to aimed at curbing the cost of living crisis.

But money expert Martin Lewis has issued a warning over the cut, which he says will be ‘wiped out’ by the next rise in energy bills set to take effect on the same day. Thanks to the conflict in the Middle East, the Ofgem price cap is, based on current forecasts, set to increase by an average of 5.1% from October 1 for households with typical use.

Martin tweeted: “I’ve just got the latest energy bill predictions. The average of 3 sources show the Price Cap rising 5.1% on 1 Oct – as the last week has seen very high wholesale rates. An annualised rise of £93 on a typical bill.

“If this happens it will wipe out any household savings from the VAT cut during that Price Cap period (those on fixes will still see a 4.8% reduction).”

Martin added that he is also planning to speak to the government about what happens to those who start a new fix after October 1 which will take them beyond the 6-month cut window.

The current plans state that energy firms should pass on the VAT savings, even to households on fixes, although this is not a legal requirement.

But there has been no indication of what will happen to those fixing for longer than six months, and whether fixes will then rise at the end of the period while the fix is still in place.

Martin added: “I’m going to speak to Energy department to ask about clarity for those who fix after 1 Oct at the new no VAT rate, but then on 1 April if VAT is added back (as the cut only lasts 6mths) does that mean fixes will rise – how should that be communicated to fixers.”

The move will be funded in part by scrapping Sir Keir Starmer’s digital ID project, which had been estimated to cost around £600 million-a-year over three years.

Funding for that scheme was due to have come from savings within existing departmental budgets, which will now be reprioritised to fund the VAT cut, the government said.

The energy price cap set by Ofgem is forecast by industry analysts to be £1,849 for a typical household, although the resumption of military action in the US-Iran war could push prices higher because of the disruption to global oil and gas markets.

New Chancellor John Healey said: “For too long, too many people have struggled with the cost of living.

“Today’s energy tax cut will give families some breathing room on bills, and provide some reassurance this winter.

“This measure is funded this year from cancelling the digital ID programme, and it will help bring down inflation while supporting households in every postcode.”

Officials said the VAT cut, from 5% to 0%, is estimated to reduce the consumer prices index measure of inflation by around 0.10 percentage points.

The policy will cost the Exchequer around £850 million in 2026/27.

For households with dual fuel bills the VAT cut will only apply to the electricity used, not gas, Downing Street said.

Darren Jones, a key Starmer loyalist who was sacked by Mr Burnham, said the digital ID scheme was “unfunded”, raising questions about how the VAT cut would be paid for.

The former chief secretary to the prime minister, who led work on the ID project, said: “The Government will have to set out how it will pay for its new policies at the budget.”