British Prime Minister Andy Burnham has announced plans to remove value-added tax from domestic electricity bills, making cost-of-living relief the first major policy move of his new government.

The measure is scheduled to take effect on October 1 and is expected to reduce the average household’s annual electricity bill by approximately £45. British households currently pay an average of about £1,862 each year.

Burnham said the tax reduction would be financed through savings created by cancelling a £1.8 billion national digital identification programme. The decision reflects his promise to deliver immediate financial relief after taking office.

Energy prices have remained a major source of pressure for British families since the surge in wholesale gas costs following Russia’s invasion of Ukraine. Recent instability connected to the Iran war has added further uncertainty to global energy markets.

The announcement was welcomed by campaigners as a positive first step, although organisations working against fuel poverty warned that it would not be enough for millions of households struggling with unaffordable bills and accumulated debt.

Financial markets are also watching Burnham’s spending plans closely. Critics within the Labour Party have questioned whether cancelling the digital ID programme will produce enough savings to cover the tax reduction.

Burnham is under pressure to demonstrate that his government can improve living standards while maintaining control of public finances and rebuilding support for Labour.