Andy Burnham's VAT Cut on Electricity Bills: What It Means... 2026

Andy Burnham's VAT cut on electricity bills will reduce household costs for millions in Great Britain. From 1 October, the 5% VAT on electricity will be suspended for six months, offering a temporary reprieve during the winter months. The measure is part of a broader cost of living package announced by the new prime minister.

How Much Will You Save?

Normally, households pay 5% VAT on their total electricity bill, which includes the daily standing charge and the cost of units consumed. Under the new policy, this VAT is removed entirely for six months. The government estimates that for a typical household, the saving will amount to £45 over the period, based on the annual price cap set by Ofgem.

Your actual savings will depend on your electricity usage. If you consume more than average, your savings will be proportionally higher. The table below illustrates potential savings for different usage levels:

Note: Figures are illustrative and based on average unit rates and standing charges as of October 2024.

What About Fixed-Rate Tariffs?

If you are on a fixed-rate energy tariff, you will still benefit from the VAT cut. Your provider will apply the reduced VAT to your bill just as it does for standard tariff customers. The fixed rates for your standing charge and unit cost remain unchanged, but the final VAT calculation is lowered.

Will Your Bill Actually Decrease?

Not necessarily. While the VAT cut provides a discount, the overall cost of electricity may still rise. Ofgem’s price cap is expected to increase by 2% in October, driven largely by higher gas prices due to the war in the Middle East. Cornwall Insight predicts this increase will offset some of the VAT savings. For many households, the net effect may be a smaller increase than would have occurred without the cut, but not an outright reduction.

The Institute for Fiscal Studies has noted that gas prices have risen more sharply since the conflict began, putting upward pressure on electricity generation costs.

Key Takeaways

• The VAT cut applies to all households in Great Britain from 1 October for six months.
• Typical savings are estimated at £45 per household.
• Northern Ireland is excluded due to post-Brexit VAT rules, but the Stormont government will receive funding for alternative measures.
• Fixed-rate tariff customers also qualify for the VAT exemption.
• Your final bill may still rise if the price cap increases as expected.

What About Northern Ireland?

In Northern Ireland, VAT on electricity remains at 5% because EU VAT rules still apply post-Brexit. However, the UK government has allocated funds to the Stormont executive to implement their own cost of living support for residents.

FAQ

The VAT cut on electricity bills is a welcome relief for many households facing rising energy costs. While it may not fully offset expected price cap increases, it provides a tangible saving for the winter months. Stay informed about your tariff and keep an eye on Ofgem announcements to understand how your bills will change.