Downing Street has said that cancelling the digital ID cards scheme will pay for Andy Burnham's promise to remove VAT (a tax added to the price of goods and services) from household electricity bills. The announcement came just hours after the new prime minister removed several of Keir Starmer's closest allies from government.

The policy was announced on 21 July 2026, in Burnham's first major move since becoming prime minister. No 10 described the VAT removal on domestic electricity as a cost-of-living measure. Officials said the money the Treasury loses by cutting the tax would be made up by scrapping the digital ID programme. The Office for Budget Responsibility — the UK's independent spending watchdog — had already said the digital ID scheme was unfunded in its November 2025 report (BBC).

The OBR report said on page 10 that the cost of digital ID cards fell under spending "for which no specific funding has been identified." On page 172 it said "no explicit provision has been made for its £0.6bn annual cost" (BBC).

About two hours after the VAT announcement, Darren Jones — who had just been sacked as Chief Secretary to the Treasury (a senior minister who oversees government spending) — publicly criticised the policy. He called the energy VAT cut unfunded (BBC; Yahoo News). Jones had supported the digital ID cards policy and was among the Starmer-loyal ministers removed when Burnham built his new cabinet (BBC).

Jones was dismissed alongside a wider clear-out of Starmer-era ministers. David Lammy, Peter Kyle, Lord Hermer and Steve Reed were also removed (BBC). Rachel Reeves was offered a cabinet post but turned it down. Wes Streeting was appointed defence secretary in the new line-up (BBC).

Downing Street's claim that the electricity VAT cut is funded by cancelling the digital ID scheme gives the first clear link between two of Burnham's earliest decisions: removing Starmer's front bench and changing the government's spending priorities (Sky News).

The complication is this. If the OBR already considered the £0.6bn digital ID programme unfunded, cancelling it may not actually free up £0.6bn of real money. The watchdog's wording suggests the spending was a future pressure on the government's reserves, not a pot of cash already set aside.

The broader context here is the speed of Jones's response. A former Treasury minister publicly contradicting his successor's version of the numbers within two hours of the announcement is unusual. His description of the VAT cut as unfunded directly challenges Downing Street's claim that the digital ID cancellation pays for it.

The disagreement comes down to a technical question. If the OBR had already treated the £0.6bn as an unfunded pressure, cancelling the scheme removes a future bill rather than releasing money to spend elsewhere. Whether that distinction matters to voters, as opposed to accountants, is what Burnham's team will now be weighing up.

The reshuffle's scale is also worth noting. Removing the Chief Secretary, the Foreign Secretary, the Justice Secretary (Lord Hermer), the Science and Technology Secretary (Kyle) and the Environment Secretary (Reed) in one go — while the former Chancellor declines to serve — leaves Burnham with a cabinet drawn largely from his own supporters. The appointment of Streeting to defence, rather than a domestic role, suggests where the new prime minister sees his government's focus.

For Westminster watchers, the sequence matters: a new prime minister announces a tax cut, funds it by cancelling a predecessor's project, and faces pushback from the Treasury minister he fired that morning — all in one afternoon. Whether this blows over or signals deeper division within the Labour Party will depend on whether other removed ministers follow Jones's lead.