Andy Burnham told to slash green levies for businesses after ‘welcome relief’ on domestic energy bills

The move was welcomed, although its funding was questioned. Energy leaders also said there was “much more work still to do” to bring down the UK’s sky-high costs.

Britain’s industrial energy costs are the highest in the developed world and are blamed by many for “decarbonisation by deindustrialisation” – where emissions targets are only met by production moving abroad.

Manufacturers said the VAT move was “a small but necessary intervention” for domestic consumers and added they hoped it demonstrated a desire to cut power costs across the board.

Moving policy costs, which include green subsidies, from industrial bills could bring them down by a quarter “almost instantly”, said trade body Make UK.

Director of Policy and Public Affairs, Verity Davidge said: “The policy move to remove VAT from electricity bills is a small but necessary intervention to tackle domestic consumers’ bills.

“Industry will be hopeful that it indicates a direction of travel from this Government and shows an understanding of the difficulties many are facing with a persistently high electricity price.

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“Whilst this provides welcome relief, if Government really wants to tackle the issue and provide long-lasting support for manufacturers, then the best way to achieve this is through rebalancing policy levies, achieving a reduction of up to 25 per cent almost instantly.

“If Government can successfully close the spark gap to a manageable level, then business can start to invest in the clean, electric choices that will ultimately lower bills in the long term.”

She also called for the British Industrial Competitiveness Scheme – which sees eligible firms exempted from paying a range of green charges – to be delivered immediately. Critics have questioned the funding of the VAT move.

Darren Jones, who lost his Cabinet post as chief secretary to the prime minister when Mr Burnham took office, questioned how the policy would be paid for.

The Government said the move will be funded in part by scrapping Sir Keir’s digital ID project, which had been estimated to cost around £600million a year over three years. But that falls short of the estimated £850million hit to tax revenues from the VAT cut and funding for digital ID was meant to have come from unidentified Whitehall savings.

The Government insisted the £1.8billion cost of the digital ID scheme over three years had been “scored” by the Office for Budget Responsibility, meaning the money would have had to be found.

Energy UK, which represents the energy industry, said the domestic VAT cut was “a quick and simple way to provide some much-needed relief for customers”.

Chief Executive Dhara Vyas said: “It is very welcome that the new Prime Minister’s first policy announcement is a move to cut energy bills.

“Household energy debt is at a record high and the wholesale gas price has increased by over 40 per cent in the last two weeks alone, which will likely put further pressure on customers this winter.

“The next step must be to look at how other costs on the bill can be funded more fairly, and taking action to help customers who most need support.

“Businesses as well as households urgently need help with bills. As part of this, making electricity cheaper in relation to gas is crucial for encouraging the adoption of clean technologies across our homes, transport and businesses.

“There is much more work still to do but this is an encouraging first step and we look forward to working with the new administration on these further measures.”

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Climate groups said they hoped the VAT saving, which equates to £45 per household over a year, would encourage homes to switch to heat pumps.

These are powered by electricity, rather than fossil fuels. Jess Ralston, Head of Energy at the Energy and Climate Intelligence Unit, said: “With two energy crises in a matter of years, the new energy secretary takes the helm as gas prices are up again with knock-on impacts for household and industrial bills.

“More British renewables are gradually loosening the grip of gas on setting electricity prices and VAT cuts could help households to switch to electric heat pumps, protecting UK homes from becoming ever more exposed to the whims of Putin and Trump when turning on their gas boiler.

“Unless we get to net zero emissions and bring balance back to our climate, the mercury will continue to break new records, putting ever more lives at risk.”

Simon Francis, Coordinator of the End Fuel Poverty Coalition, said: “Removing VAT from electricity bills is a positive statement of intent by the new administration.

“But it does not address the scale of what households are facing, with millions still left paying an unaffordable share of their income on energy and record levels of energy debt built up over successive winters of high bills.

“The Prime Minister’s next move must be to go even further on bringing down the cost of energy and bringing in increased levels of targeted support for those who need it most: an enhanced Warm Home Discount, reformed Cold Weather Payments and an energy debt relief scheme.”