Letter From The Founder: £3.75 A Month Won’t Touch The Sides

Andy Burnham’s government made its first big move this week. VAT, the tax added to most things you buy, including your energy bill, is being removed from household electricity bills. Antonia Medlicott explains what it means.

Right now you pay a bit of tax on top of your electricity, from October you won’t. The government says this will take £45 off the average household’s bill over a year.

Let’s do the maths properly, because I don’t think anyone in Downing Street has bothered to say it out loud. £45 a year works out to £3.75 a month. That’s the actual number behind the headline.

It’s not nothing. Other governments talked about doing this for years without ever following through. Credit where it’s due, Burnham’s team has actually done it.

But there’s a catch in how they say they’re paying for it. The government says this is funded by cancelling a different project, Keir Starmer’s plan for digital ID cards, which official costings put at £1.8 billion over three years. Here’s the part that didn’t make the announcement: those same official figures also said no money had actually been set aside for that project yet. It was never a real pile of cash sitting somewhere waiting to be spent, it was a future cost that simply isn’t happening now.

So this isn’t £850 million in genuine savings being handed back to you. It’s more like cancelling a holiday you hadn’t booked yet, and calling the money you “saved” a gift.

Now let’s look at what £3.75 a month actually means against the bills people are facing right now.
The average household energy bill currently sits at £1,663 a year, around £139 a month.

A £3.75 saving works out to about 2.7% off that. Meanwhile, food prices are still somewhere between 12% and 18% higher than they were back in 2023. Even though the rate at which prices are rising has slowed down, that doesn’t mean things are getting cheaper, it just means prices are climbing more slowly from a much higher starting point than a few years ago.

Then there’s something that never makes it into any announcement: frozen tax thresholds. This is the amount you can earn before you start paying tax, or before you move into a higher rate of tax, and it hasn’t gone up in years even though wages have. So if you earned £30,000 in 2021 and you’ve had normal pay rises since, you’re probably on around £36,000 now, but a real chunk of every one of those pay rises has gone straight to the taxman rather than into your pocket, simply because the tax bands never moved to keep up with rising pay.

That’s a bigger, quieter squeeze on your money than anything a small energy bill saving can fix, and it’s still happening in the background regardless of what happens with electricity bills.

Since I first drafted this, two more announcements have landed, and they only make my point stronger. On Wednesday, Burnham confirmed that bus fares in England will be capped at £2 again from January 2027, down from £3 now. That’s a genuinely useful saving for anyone who relies on the bus, cutting some fares by up to a third. It’s costing over £500 million, some of it moved across from money that was originally set aside for climate projects abroad.
The other announcement matters more for what it takes away than what it gives.

Burnham had suggested, during his campaign, that he wanted to look at raising that frozen tax-free amount I mentioned above, exactly the change that would have helped ordinary workers and pensioners caught by this squeeze. He’s now ruled that out completely, saying the country can’t afford it. So the one change that might have actually fixed the problem is off the table.

So here’s my honest read. £3.75 a month is a real saving, and I won’t pretend it isn’t, and cheaper bus fares will genuinely help people who use them. But set against a £1,663 a year energy bill, food prices still nearly a fifth higher than before, rents rising faster than wages in most cities, pay rises quietly being taxed away, and now a confirmed decision not to fix that last problem at all, this starts to look less like a small win and more like a government choosing the flashy, cheap headlines over the one change that would have actually made a difference. Calling any of this “breathing room” feels like it was written by someone who hasn’t looked at their own bills in a while.

What I’d actually want to see next: something that helps with the fixed daily charge on energy bills, which hits people who use very little electricity just as hard as people who use a lot, or a proper look at why that tax-free amount hasn’t moved while wages have. Either would do more for the average household’s monthly budget than another small percentage cut that works out to less than the price of a coffee.

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This article reflects my own opinion and is for general information, it doesn’t constitute personal financial advice. If you’re concerned about how rising costs are affecting your own finances, please speak to a regulated financial adviser or a free debt charity for tailored support.

Sources: ITV News, “Andy Burnham announces tax cut on energy bills from October”; GOV.UK, “New PM cuts tax on household electricity bills”; SalaryWise UK Cost of Living Tracker (July 2026); CashCalcHub, “UK Cost of Living 2026”; ONS Consumer Price Inflation data; Office for Budget Responsibility, Economic and Fiscal Outlook (digital ID scheme costing); Al Jazeera and The Register, coverage of the digital ID scheme’s cancellation; Reuters, “UK’s Burnham targets cheaper bus fares in cost-of-living drive,” 22 July 2026; Eastern Eye, “No Tax Cut, But New Help Is Coming: Here’s What Burnham Is Offering Instead of a Personal Allowance Rise.”