Britain's new Prime Minister Andy Burnham on Tuesday announced the abolition of value added tax (VAT) on domestic electricity bills from October, unveiling his first major measure to help ease the cost of living for millions of households.

"We're taking immediate action to cut taxes on energy bills, put more money in people's pockets and bring back hope," Burnham said in a statement, a day after taking office.

The Labour government said the measure would save the average household around £45 a year.

The tax cut is due to take effect on 1 October, coinciding with an expected increase in Ofgem's energy price cap for electricity and gas.

"The government is tackling rising bills with a tax cut to remove VAT from domestic electricity bills from 1 October, in time for the next Ofgem price cap," the statement said.

The government said the policy would be funded by scrapping former prime minister Keir Starmer's proposed digital identity scheme, which it said would have cost taxpayers £1.8 billion.