From July 29, 2024, to July 21, 2026, there are almost two years. That is more than the average lifespan in office of a British Prime Minister. It is also the distance between the first decision of the former Prime Minister of the country, Keir Starmer, and that of his successor, Andy Burnham. Both indicate a difference in political style between politicians who share ideology and party.
On July 29, 2024, Starmer's Government announced the cut of the Winter Fuel Payment, thus leaving around ten million British pensioners without heating subsidies. Yesterday, July 21, the Burnham Government, which had been in power for only 20 hours, announced the permanent elimination of VAT on the electricity bill paid by households, currently at 5%. The measure will be effective from October 1. The tax will remain for non-profit organizations, as well as the 21% for most businesses.
The difference between Starmer and Burnham is clear. The former came to power with a gesture that prioritized fiscal consolidation over redistribution, despite the latter traditionally being the flagship of his party, the Labour Party. Politically, it was a debacle. Although Starmer partially reversed course in June 2025, the cut plummeted his popularity, which never recovered.
Burnham does not want to make the same mistake. That's why he has started with a politically difficult measure to attack. The electricity bill for UK households is 23% higher than the EU average, the economic and political bloc that the country left in 2021 in search of a glorious future that is still pending. Only in Germany is it more expensive. However, the 8.6% more that Germans pay for electricity is partly offset by the fact that their GDP per capita is 5% higher than that of the British.
However, the fundamental problem that forced Starmer to commit political suicide with the heating subsidy for the elderly also haunts Burnham. It is the State debt, created by twelve years of Conservative governments. In the UK, it is around 100% of GDP, and with the country out of the EU and the euro, its sustainability is under tremendous pressure. In fact, the interest on the ten-year bond rose by seven basis points to 5.02%, while that of the 30-year bond increased by eight, reaching 5.73% when on Monday, just four hours after taking office, Burnham said he wanted "some flexibility" in managing public finances to be able to manage his social programs to help the most vulnerable social groups.
Therefore, every increase in spending or reduction in revenue must be offset to maintain fiscal stability. In the case of zero-rated electricity VAT, the State will lose at least £850 million (¤1 billion) annually in the current fiscal year. To cover the gap, the Government has decided to suspend the creation of an Electronic ID (in the UK, like in the US, there is no national identity document).
But the numbers don't add up. The Electronic ID was going to cost the public coffers ¤2.1 billion at the current exchange rate over three years. In that period, the drop in VAT revenue will amount to ¤3 billion. And from the fourth year onwards, the Electronic ID would have been fully implemented, so its budgetary impact would be minimal. Of course, four years in politics are a geological era.
Balancing the books will be Burnham's major challenge, who also announced his other first major measure yesterday: a comprehensive program to provide permanent accommodation and social housing for homeless people in the UK, so that none have to sleep rough. It is a system that was already developed in Manchester, the city where he was mayor for a decade, and it will cost another £340 million (around ¤400 million). In this case, there are no cuts, but also no debt, just a reallocation of funds within the Ministry of Housing.
With these measures, Burnham wants to not only give a social touch to the Government but, above all, to make that social touch very visible to the public opinion and, at the same time, to ensure that the debt markets are convinced that the Government will not fall into an unsustainable spending spiral. That's why the new British Prime Minister coined a series of phrases in both directions yesterday, in the first meeting with his cabinet.
For the voters, it was "we have to be the 'cost of living' Government." For financial operators, "we have to show fiscal discipline; we have to make it clear that our commitment to the fiscal rules [established by the Starmer Government] is genuine." Therefore, most of his social plans will be presented in October, when the new Chancellor, -the centrist and very orthodox John Healey- has outlined a fiscal plan that guarantees the sustainability of debt payment with a social agenda.