British Prime Minister, Andy Burnham, has moved to ease pressure on households by abolishing VAT on domestic electricity bills in his first major policy decision since taking office.

The VAT rate on household electricity will be reduced from 5 per cent to zero from October 1, a move expected to save a typical household approximately £45 annually.

The government said the tax cut would be funded by cancelling the Digital ID programme.

U.K. Chancellor, John Healey, said the measure would help bring down inflation while providing financial relief to families across the country.

“For too long, too many people have struggled with the cost of living,” Healey said.

“Today’s energy tax cut will give families some breathing room on bills, and provide some reassurance this winter,” he added.

Burnham said the policy would provide “breathing space” for people facing cost-of-living pressures as his administration works to reduce the strain on household finances.

The announcement came a day after Burnham became Prime Minister and appointed his cabinet.

Ed Miliband was appointed Foreign Secretary, while Louise Haigh became Chancellor of the Duchy of Lancaster. Wes Streeting was named Defence Secretary.

Angela Rayner returned as Housing Secretary, while Shabana Mahmood retained her position as Home Secretary.