As energy prices continue to soar, Prime Minister Andy Burnham's promise to cut VAT from domestic electricity bills by October 2026 has sparked concern over how the Labour government plans to fund this £850m initiative. The answer lies in scrapping its Digital ID programme, which had an estimated annual cost of £600m - but critics are warning that this solution might not be as straightforward as it seems.
The Office for Budget Responsibility (OBR) has highlighted that the Digital ID programme's costs were always described as "provisional" and there was no explicit provision to cover its expenses. Now, with the government set to cancel the programme, Labour's backbenchers are questioning how the £1.8bn allocated for it will be used to fund the VAT cut instead.
Even former Treasury minister Darren Jones, a loyalist to Keir Starmer, has chimed in on social media: “The Digital ID program was unfunded. The government will have to set out how it will pay for its new policies at the budget.” Shadow Chancellor Mel Stride echoed this sentiment, accusing Labour of "playing fast and loose with public finances."
The Prime Minister's office has tried to allay concerns by stating that savings from Digital ID would be reprioritised from existing budgets. However, critics argue that this is just a way of moving funds around without addressing the underlying issue of unfunded spending commitments.
Despite the controversy surrounding its funding, Deputy Labour leader Lucy Powell insisted that scrapping Digital ID was a necessary step towards prioritising tangible cost of living measures. With energy bills set to rise by 30% in October, families will be breathing a sigh of relief if they can expect immediate relief from this VAT cut - but it remains to be seen whether the government's plans will hold up to scrutiny.