LONDON, July 22 -- The first economic policy Andy Burnham announced as prime minister was not a budget, not a tax reform plan, and not a statement on public spending. It was a cut to the VAT on household electricity bills, from five percent to zero, effective October 1. The decision, announced Monday within hours of his cabinet being sworn in, lands directly in the pocket of tens of millions of British households that have spent four years absorbing energy costs that ran ahead of wages and savings.

The measure, confirmed in a government press release Monday, reduces the value-added tax rate on domestic electricity from five percent to zero starting with the October billing cycle. Burnham's office estimated the cut would lower the average...