The new Prime Minister of the United Kingdom, Andy Burnham, is determined to make his newly inaugurated grace period last as long as possible. Hours after setting foot in Downing Street, his first announced measure this Tuesday has been the abolition of VAT on household electricity bills. It is not a very high amount. It is a reduced tax, 5%, so the cut will mean an average saving of just over 50 euros per household annually starting in October.
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“I promised I wanted to give people more breathing room. And that is what I am announcing on my second day as Prime Minister. We are going to take immediate measures to lower taxes on energy bills, put more money in people’s pockets and give them back hope,” Burnham said when announcing the cut.
The promises of the new head of government, who intends to build more social housing, reindustrialize the country, improve care for dependents, and alleviate the cost of living, have begun to make the markets nervous. Nobody forgets the “Liz Truss effect,” when the ephemeral conservative prime minister—who barely lasted 45 days in office—managed to sink the pound sterling and public debt with announcements of tax cuts that put the country’s fiscal discipline at risk.
Although Burnham has spent months trying to amend his previous statements in which he suggested that the United Kingdom should not feel so constrained by public debt investors, experts have already begun to calculate some of his announced plans to find out where the money will come from.
In the case of the abolition of VAT on electricity bills, the new prime minister’s team assures that it will compensate for this loss with what will be saved by abolishing the plan to impose electronic identity cards, an idea from the previous Starmer government to control irregular immigration that Burnham has eliminated with a stroke of a pen due to its unpopularity.
The current Downing Street team assures that the budget to implement the electronic card was about 2.1 billion over three years, and that the abolition of VAT, estimated at about 1 billion, can come from that allocation.
But Darren Jones, former minister and Starmer’s right-hand man, was among the first to point out that the previous government never specified which budget item it would use to finance that project. “The new government is going to have to explain how it intends to pay for its new measures,” Jones said.
Burnham surprised everyone on Monday by appointing John Healey, Starmer’s former Defense Minister, as Chancellor of the Exchequer (chancellor, in British political jargon), whose division was the final nail in the coffin of the previous British head of government. Healey left his post in protest at the reduction of the budget for the UK’s military capabilities, which he considered a mortal blow to his department’s rearmament efforts.
As the new Chancellor of the Exchequer, his critics have been quick to point out that he will now have to demonstrate how he obtains the money he demanded for Defense. Both he and Burnham have suggested issuing special bonds for rearmament, as other countries have done, but experts like Paul Johnson, the former director of the prestigious Institute for Fiscal Studies, have already been quick to point out that this formula, whatever it is called, is still more public debt.
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