Andy Burnham told ministers he will lead a “cost-of-living Government” after announcing an £850 million tax cut on electricity bills.
From October 1 electricity bills will be VAT free, saving households about £45 a year as part of the new Prime Minister’s promise to help ease cost-of-living pressures.
But Darren Jones, a key ally of former prime minister Sir Keir Starmer who lost his Cabinet post on Monday when Mr Burnham took office, said the policy was “unfunded”.
Mr Burnham used the first meeting of his Cabinet to say that ministers must give people “a sense that help is coming”.
He vowed to always “show how we’re going to pay” for policies to help hard-pressed people.
The Government said the electricity bill VAT cut would be funded in part by scrapping Sir Keir’s digital ID project, which had been estimated to cost about £600 million a year over three years.
But that falls short of the estimated £850 million hit to tax revenues from the VAT cut, and funding for digital ID was meant to have come from unidentified Whitehall savings.
Prime Minister Andy Burnham arrives to applause at his first Cabinet meeting (Eddie Mulholland/Daily Telegraph/PA)PA WireMr Jones, who was the minister in charge of the digital ID scheme, said in a post on X: “Good news that VAT will be cut on electricity bills. It’s a simple way for families to save a few quid, and to mechanically help to keep inflation that little bit lower.
“But the DigitalID program was unfunded.
“The government will have to set out how it will pay for its new policies at the budget.”
His public criticism is a sign that Mr Burnham’s premiership could face problems from Starmer loyalists.
The Government said the £1.8 billion cost of the digital ID scheme over three years had been “scored” by the Office for Budget Responsibility, meaning the money would have had to be found.
Chancellor of the Exchequer John Healey arriving for Cabinet (Stefan Rousseau/PA)PA WireThe money that would have been used has been reprioritised to fund the tax cut, ministers said.
Mr Burnham told the Cabinet that they needed to examine “all possible ways” to help families struggling with high costs.
After arriving to applause, the Prime Minister told his new-look top team in Downing Street they needed to consider “What can we do just to take that little bit of pressure off people’s shoulders, just to give them that little extra sense that help is coming so that they can have that bit of hope that things are getting better”.
He asked his colleagues to look into what measures “big and small” their departments could do to help.
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“We need to be a cost-of-living Government, getting that cost of living down, looking at all possible ways of doing that.”
AI minister Kanishka Narayan, Business Secretary Jonathan Reynolds and Justice Secretary Alex Norris arrive in Downing Street (Stefan Rousseau/PA)PA WireMr Burnham sat opposite his new Chancellor John Healey, and was flanked by Cabinet Secretary Dame Antonia Romeo and Education Secretary and deputy Labour leader Lucy Powell.
The Labour leader said the Cabinet he had assembled, after purging allies of Sir Keir, “reflects the party, the country, all backgrounds”, and told those who had survived the clear-out to take it as a “major vote of confidence”.
He said the Government needed to demonstrate its commitment to the fiscal rules, which would “require us to be disciplined together”, as he expressed confidence he had appointed a “team who will back me in doing that”.
Mr Healey, who resigned from Sir Keir’s government in protest at funding for the military, warned his colleagues that “we’ve got some big challenges” ahead and that they needed to look closely at their departmental budgets as they refocus spending.
The new Chancellor said the move to reduce VAT on electricity bills “doesn’t solve the cost of living, but it does indicate that we’re offering them help, we’re offering them hope, but we’re only doing that because of a reprioritisation”.
But Tory leader Kemi Badenoch said: “It’s only one day into Burnham’s Government and already the explanations are falling apart.
“You can’t use the funding from an unfunded programme to pay for cheaper bills.”
Martin Lewis, founder of MoneySavingExpert, said the VAT cut would have little impact.
“This is a good totemic step and very welcomed,” he said. “Yet in practice people won’t feel much benefit.”
Helen Miller, director of economic think tank the Institute for Fiscal Studies, said she was “disappointed” by a policy which creates more complexity in the tax system and will be “hard to undo” after a year.
“Government think they have found funding for this year – but only by reallocating savings that haven’t yet been made,” she said.
“If the Government can’t add 5% VAT back on to bills next year, how will they pay for it next year and the year after?”