Andy Burnham's VAT cut on electricity bills offers a temporary reprieve for households in Great Britain, reducing the 5% VAT to 0% for six months starting October 1. This measure, part of a broader cost of living package, aims to ease winter energy costs. Here's what you need to know about your potential savings and how it affects your bill.
How Much Will You Save on Electricity Bills?
Typically, households pay 5% VAT on electricity, applied after the daily standing charge and unit costs are totaled. Under the new policy, from October 1, 2023, through March 2024, no VAT will be charged on electricity usage in Great Britain. The government estimates a typical household will save £45 over the six-month period, based on average energy use. Your actual savings depend on your consumption—higher users save more.
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For example, a household using 3,000 kWh annually could save around £40, while a larger home using 5,000 kWh might save £60. The table below compares savings based on usage levels.
| Annual Electricity Usage (kWh) | Estimated VAT Savings (6 months) |
|---|---|
| 2,500 | £35 |
| 3,500 | £45 |
| 4,500 | £55 |
Impact on Fixed-Rate and Standard Tariffs
If you're on a fixed-rate energy tariff, your standing charge and unit costs are set, but VAT is still added at the end. Your provider will apply the zero rate automatically, reducing your total bill. For standard tariff customers, the savings depend on Ofgem's price cap, which may rise in October. The latest forecast from Cornwall Insight suggests a 2% increase in the cap due to global gas prices, partly driven by the Middle East conflict. This means your bill might still increase overall, but less than without the VAT cut.
Key Takeaways
- VAT on electricity is cut from 5% to 0% from October 1, 2023, to March 31, 2024.
- Typical household saves £45, with higher users saving more.
- Fixed-rate tariff customers benefit directly; standard tariff customers may see smaller net savings.
- Northern Ireland retains 5% VAT due to post-Brexit rules, but gets funding for alternative measures.
FAQ
Will my electricity bill go down with the VAT cut?
Not necessarily. While the VAT cut reduces costs, Ofgem's price cap may rise by 2% in October, potentially offsetting some savings. Your final bill depends on your usage and tariff type.
Does the VAT cut apply to gas bills?
No, the VAT cut applies only to electricity bills. Gas bills continue to have 5% VAT. The policy targets electricity to help with winter heating costs.
How do I get the VAT savings automatically?
You don't need to do anything. Energy suppliers in Great Britain will automatically apply the 0% VAT rate to your electricity bills from October 1. Check your bill to confirm the change.
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