Andy Burnham has been criticised over the funding of his first significant policy as prime minister after moving quickly to tackle the cost of living crisis with an £850m tax cut on electricity bills.
Mr Burnham told his first cabinet meeting that he wanted to be “a cost of living government” as he signalled his priorities for power, with the energy bill cut – expected to save households around £45 per annum – due to come into force on 1 October.
The move comes amid growing speculation that Mr Burnham is planning a new wealth tax to fund his spending plans while also looking at raising the income tax threshold, currently £12,570.
But the pledge has already sparked a row after an ally of ousted prime minister Sir Keir Starmer warned his plan to fund it with savings from the axed digital ID scheme did not add up.
Darren Jones, who was sacked by Mr Burnham as chancellor of the Duchy of Lancaster, claimed the digital ID scheme had been “unfunded” adding: “The government will have to set out how it will pay for its new policies at the Budget.”
Mr Jones was one of a number of Starmer allies sacked by the new PM who are understood to have joined the former PM at a pub in north London on Monday to discuss the new government – including complaining about Rachel Reeves being replaced as chancellor by “a bloke”, John Healey.
The criticism prompted the PM to promise that he would always “show how we’re going to pay” for policies.
Speaking to his cabinet in front of the media before the private meeting, he said that “we will seek to do more” with plans to be set out “over the coming days”.
“But always we will show how we are going to pay for it, what we are reprioritising. That will be a theme that we will always come back to," he said.
He also told the cabinet that they needed to examine “all possible ways” to help families struggling with high costs, saying they needed to consider “what can we do just to take that little bit of pressure off people’s shoulders, just to give them that little extra sense that help is coming so that they can have that bit of hope that things are getting better”.
He asked his colleagues to look into what measures “big and small” their departments could do to help.
“We need to be a cost of living government, getting that cost of living down, looking at all possible ways of doing that,” he added.
The prime minister doubled down in a briefing with journalists on Monday on his intention to bring in measures which would make people’s lives easier.
Announcing earlier on Monday that from 1 October energy bills will be VAT-free, Mr Burnham said he was giving people “breathing space”.
Energy suppliers are expected to pass the VAT reduction on to all customers, including those on fixed tariffs, the government said.
The government said funding for the digital ID scheme was due to have come from savings within existing departmental budgets, which will now be reprioritised to fund the VAT cut.
Later, a Downing Street spokesperson admitted that the savings would need to be found, but responding to Mr Jones added: "The measure announced is fully funded, this immediate action applies and is funded for this financial year."
Newly-appointed chancellor John Healey said: “For too long, too many people have struggled with the cost of living.
“Today’s energy tax cut will give families some breathing room on bills, and provide some reassurance this winter.”
The energy price cap set by Ofgem is forecast to be £1,849 for a typical household, although the resumption of military action in the US-Iran war could push prices higher.
The announcement has prompted speculation among Mr Burnham’s allies that the prime minister could call an early election as soon as October this year.
One Labour MP said: “Preparing for an early election does make sense even if he decides against it. There is a good chance we will be leading in the polls after the summer. Reform are in a mess and the Tories are still toxic.”
Veteran former minister Lord George Foulkes, who is a supporter of Mr Burnham, said: “There is a temptation for Andy Burnham to have an early election.”
The Tories have already put candidates in place in readiness for an early election. Reform has demanded one.
Meanwhile, researchers believe that a wealth tax, broadly supported by Mr Burnham’s new first secretary of state Louise Haigh, could raise £10bn.
Economic experts have claimed a 2 per cent charge on households with more than £100m in assets would raise a vast amount and affect less than 1,000 of the wealthiest households in the UK.
Authors of the report – Gabriel Zucman, professor of economics at the Paris School of Economics and Ben Tippet, lecturer in economics and wealth inequality at King’s College London – said the tax would “raise meaningful revenues and dampen runaway inequality”.
The report, seen by The Guardian, outlines a plan which would see HMRC calculate the wealth of rich families, including assets such as property, private businesses and pension wealth, art, land and charitable assets to prevent tax avoidance.
The authors argue that the collection of data would not be costly for HMRC to attain as it is already underway. Another proposal is to raise the highest rate of income tax from 45p to 50p.
Mr Burnham has declined to rule out a wealth tax, telling former footballer and presenter Gary Lineker earlier this month that his government may “ask for a little more”.
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