Downing Street has confirmed that cancelling the digital ID cards scheme will pay for Andy Burnham's pledge to remove VAT from household electricity bills. The announcement came hours after the new prime minister's reshuffle removed several of Keir Starmer's closest allies from government.

The policy was announced on 21 July 2026, in Burnham's first major intervention since entering Downing Street. No 10 presented the VAT removal on domestic electricity as a cost-of-living measure. The revenue the Treasury gives up by cutting the tax, officials said, would be offset by scrapping the digital ID programme — a scheme the Office for Budget Responsibility (the UK's independent fiscal watchdog) had already flagged as unfunded in its November 2025 Economic and Fiscal Outlook (BBC).

The OBR's outlook noted on page 10 that the cost of digital ID cards fell under spending "for which no specific funding has been identified," and stated on page 172 that "no explicit provision has been made for its £0.6bn annual cost" (BBC).

About two hours after the VAT announcement, Darren Jones — sacked as Chief Secretary to the Treasury in the reshuffle — publicly criticised the policy, calling the energy VAT cut unfunded (BBC; Yahoo News). Jones had been an advocate of the digital ID cards policy and was among the Starmer-loyal ministers removed when Burnham built his new cabinet (BBC).

Jones was dismissed from the Treasury 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 assertion that the electricity VAT cut is funded by cancelling the digital ID scheme provides the first concrete link between two of Burnham's earliest decisions: clearing out Starmer's front bench and redirecting fiscal priorities (Sky News).

The OBR's existing assessment of the digital ID scheme adds a complication to the Treasury's arithmetic. If the programme was never explicitly costed in departmental spending limits, cancelling it may not release £0.6bn of real-terms headroom in the conventional sense. Think of it like cancelling a gym membership you never actually paid for: you stop the obligation, but you do not free up cash you were already spending. The watchdog's language — "no specific funding has been identified" — suggests the spending was a pressure on the government's reserves rather than a line item with a dedicated allocation. How No 10 accounts for the offset, and whether the OBR scores it as a genuine saving in its next forecast, will matter to anyone tracking the new government's credibility with the markets.

The broader context here is the speed and significance of Jones's intervention. A former Chief Secretary — the minister who oversees day-to-day departmental spending and negotiates settlements with the OBR — publicly contradicting his successor's framing of the numbers within 120 minutes of the policy announcement is the kind of breach that lobby correspondents will be watching for signs of wider backbench unease. His characterisation of the VAT cut as unfunded directly challenges Downing Street's presentation that the digital ID cancellation covers it.

The split between the two readings of the fiscal position turns on a technical question about scoring. If the OBR had already treated the £0.6bn as an unfunded pressure, cancelling the scheme eliminates a liability rather than releasing a resource. Whether that distinction holds up politically, as opposed to fiscally, is the calculation Burnham's team will now be making.

The reshuffle's scope also bears examination. Removing the Chief Secretary, the Foreign Secretary, the Justice Secretary (Lord Hermer), the Science and Technology Secretary (Kyle) and the Environment Secretary (Reed) in a single sweep — while the former Chancellor declines to serve — leaves Burnham with a cabinet assembled largely from his own faction. The appointment of Streeting to defence, rather than to a domestic brief, signals where the new prime minister may see his government's defining territory.

For Westminster watchers, the sequence matters: a new prime minister announces a flagship tax cut, funds it by cancelling a predecessor's signature project, and faces public pushback from the Treasury minister he fired that morning — all within a single afternoon. Whether this is a one-day story or the opening skirmish of a sustained internal divide will depend on whether other removed ministers follow Jones's lead.