Prime Minister Andy Burnham has announced plans to scrap VAT on domestic electricity bills from October 1, saying the move will cut the average annual household bill by around £45.
The measure, unveiled on his second day in Downing Street, is expected to cost £850million in 2026/27 and is the first in a series of economic announcements expected from the new government.
Mr Burnham said the tax cut would be funded by cancelling Sir Keir Starmer's planned digital ID scheme, which he confirmed at the weekend would be scrapped.
However, the funding claim has been challenged by political opponents and former Labour ministers.
Darren Jones, the former cabinet minister who oversaw the digital ID policy, said the scheme was "unfunded", adding: "The Government will have to set out how it will pay for its new policies at the Budget."
Robert Jenrick, Reform UK's Treasury spokesman, said: "Burnham’s numbers don’t add up. He says he’ll pay for the VAT cut by scrapping digital ID. One problem. That measure isn’t in the Government books, so he’s not actually saving the Exchequer any money that’s been committed."
Shadow chancellor Sir Mel Stride also questioned the plans, saying: "We are only one day in and already Labour are playing fast and loose with the public finances.
"Labour should be doing what the Conservatives called for months ago – taking VAT off energy bills in a fully funded way by scrapping net zero subsidies."