LONDON — Andy Burnham entered Downing Street with a promise to give hard-pressed voters “breathing space” on the cost of living. Now he must show he can deliver.
At the top of his list is finding a way to reduce stubbornly high energy bills — even as the Iran-U.S. war forces up prices and ministers are under pressure to cut their own departmental budgets. The new prime minister knows any intervention must make a real impact for voters if he is to turn Labour’s fortunes around.
“You need to make an emotional connection with people,” said one senior government official, granted anonymity to talk candidly about Whitehall thinking.
Britain’s new prime minister has already made one bid to show voters he is serious about tackling the problem: Removing VAT from household electricity bills, something he announced on his first day in No. 10.
The move will knock less than £4 off the average monthly bill, ends after one year, and comes with a price tag of £850 million. Downing Street said it will be paid for through so-far unspecified Whitehall savings.
But Burnham and his new Energy Secretary, Miatta Fahnbulleh, promised that the intervention is just a start. Cutting VAT is a “down payment” ahead of the winter, Fahnbulleh said.
That means ministers have just weeks before Burnham’s first budget this fall to figure out what, if anything, can really ease the burden — and how to pay for it.
“The fiscal space is going to be a challenge, and that is the case for any government,” said Sam Alvis, associate director for environment, energy security, and nature at the Labour-aligned Institute for Public Policy Research think tank.
That’s because any intervention to bring down energy bills will have to be funded from already under-pressure Whitehall departments.
“This government is going to have a look at the budget. Whether it chooses to do some priorities differently — that is an open question,” Alvis said.
One option for Burnham is to slice more charges from electricity bills, as he did with VAT. But any savings could be quickly wiped out if, as expected, the Middle East crisis pushes up wholesale gas prices.
Forecasters at Cornwall Insight predict that average annual household bills will rise by two percent this fall, even after the VAT intervention.
That leaves Burnham facing the same problems as the man he replaced, Keir Starmer.
Starmer cut £150 off yearly bills last November by shifting some so-called green levies, used to fund a clean energy scheme, onto general taxation. By the summer, that cut had been swallowed up by higher prices driven by the Strait of Hormuz crisis.
Nonetheless, Alvis said, this approach remains Burnham’s most realistic option.
“We are now in a bit of a scenario of salami slicing, where you’re aggregating lots and lots of smaller bits,” he said. “There’s no one big thing that you can do that’s going to take over £100 off bills. So, it’s about accumulating all those things that you think you could possibly do in one go, so it becomes sizable and noticeable.”
One of those options, proposed by the think tank Nesta and reportedly being considered by Burnham, involves shifting further green levies from electricity bills onto tax.
It identified another £42 of savings from a yearly bill, costing the Treasury £1.7 billion per year for a decade.
Every small cut helps consumers, insists Andrew Sissons, Nesta’s director of sustainable futures. The think tank has also proposed knocking £22 a year off bills by shifting the standing charge on gas — currently a fixed daily fee — onto the unit rate, which changes depending on how much energy a home uses. That would take a year to implement and would not cost the government a penny, Nesta says.
But such moves must be accompanied by larger interventions if voters are to feel the benefit, he added.
“The amount you’d need to cut people’s energy bills … for it to feel like a real difference is quite substantial,” he said. The government, he argued, should aim for a “big package.”
If the government aims for larger changes, they would come with even greater costs.
Nesta has suggested a one-off move to wipe out electricity debt, removing some bailout costs currently funded through bills, taking total annual bill savings to £130. But the Treasury would have to find £2.7 billion to fund that.
“[We] shouldn’t ignore the fact that there are fiscal trade-offs. But if the government wants to prioritize energy bills, then this is the kind of step it needs to take,” Sissons added, pointing to their proposed levy change alongside the VAT cut.
Net-zero policies will, ministers hope, bring down bills for good. But large-scale changes take years to implement.
“Realistically, the only way to deeply, deeply help people is to get them solar panels, is to get them an EV [electric vehicle], potentially heat pumps in some houses as well,” said Alvis.
This is another reason to opt for “salami slicing”, he said: To “alter the balance of electricity and gas prices, so that those clean technologies stack up and save people even more money.”
Alex Bevan, a research fellow at the Future Governance Forum, agreed that big savings attached to the shift to green energy were still a way off.
“There aren’t quick workarounds on whichever form of energy you choose to generate and deploy,” he said. But government must nonetheless “lock in the benefits [of clean energy],” he argued.
The same official quoted above stressed that no decision had yet been made on how the government would intervene on bills. Asked whether the government favored a series of small policies or one big intervention, they said: “It doesn’t have to be binary. … It doesn’t have to be one or the other.”
A Department for Energy Security and Net Zero spokesperson said: “The energy secretary’s focus is bringing bills down for good. We will tackle the cost of living to make life’s essentials affordable again and bring back hope.”
For now, Alvis insisted, Burnham has one thing going for him: He can operate in the knowledge voters accept international issues are pushing up costs.
“The political point I would make is: By doing your best effort, you give yourself the space to have a conversation with the public,” he said.
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