Jul 21, Kathmandu - Newly appointed UK Prime Minister Andy Burnham has announced the removal of Value Added Tax (VAT) on electricity bills, promising an average annual reduction of £45 for consumers starting this October. This move aims to ease the financial burden faced by households amid rising living costs.

Just a day after assuming office, Burnham revealed his immediate plan to cut taxes on energy bills, fulfilling a campaign promise to provide relief to voters and offer breathing space in household budgets. “I wanted to give people relief, and on my second day as Prime Minister, I am delivering on that promise,” Burnham stated in a release. “We are taking swift action to reduce taxes on energy bills, putting more money into people's pockets and fostering hope.”

Government officials explained that the revenue loss from this tax cut will be offset by canceling the Digital Identity Card scheme. However, shortly after the announcement, Darren Jones, the Chief Secretary to the Prime Minister who was recently removed during a cabinet reshuffle, questioned the budget management of this initiative.

Chancellor John Hilli welcomed the move, saying, “Today's energy tax cut will provide some relief to families on their bills and bring reassurance during the winter months.” 

Burnham, who became Prime Minister promising to make living costs more manageable, end privatization of public services, and address homelessness, has prioritized energy affordability in his agenda. Industry Minister Jonathan Reynolds emphasized that reducing VAT on electricity bills is a top priority, asserting that the decision is legally sound and in the best interest of the British public.

The policy is also expected to encourage consumers to switch from gas boilers to electric heating, as the price gap between gas and electricity narrows. Meanwhile, in Northern Ireland, due to EU compliance requirements, VAT will remain in effect, with the government providing relief packages to the region accordingly.

In contrast, Nepal’s recent policies reveal a stark difference. The Nepali government’s budget for fiscal year 2083/84 has introduced a 5% tax on households consuming over 50 units of electricity and a 13% tax on industrial and commercial users. While the UK reduces taxes to boost hope and economic activity, Nepal’s increased electricity taxes have disappointed consumers and drawn widespread criticism.

Nepal’s decision to impose VAT on electricity amid efforts to promote domestic consumption and reduce reliance on imports has been met with opposition. Critics argue that the tax burden particularly affects low-income households, making electricity even more expensive.

While the UK’s policy aims to promote cleaner energy use and environmental conservation by encouraging electric heating over gas, Nepal’s rising electricity costs risk pushing consumers back toward LPG and traditional fuels. This could hinder Nepal’s national goals of reducing trade deficits and advancing renewable energy initiatives.

As the UK takes steps to provide relief and boost sustainable energy use, Nepal faces challenges in balancing energy pricing, government expenditure, and environmental commitments.