UK to scrap 5% VAT on household electricity bills
From October 2026, households will save an average of £45 annually on energy costs.
1New VAT policy
UK Prime Minister Andy Burnham announced VAT on electricity bills will drop from 5% to zero starting October 2026. The measure will save typical households £45 annually and applies to both fixed and variable tariff customers across England, Wales and Scotland.
2Government rationale
Burnham stated this move delivers on his promise to "give people breathing space" amid cost-of-living pressures. The tax cut forms part of broader inflation relief measures, putting money back into household budgets during energy-intensive winter months.
3Implementation details
The VAT reduction will automatically apply through energy suppliers. Northern Ireland will receive equivalent funding for similar support. Unlike previous energy bill schemes, there are no eligibility criteria based on benefit receipt - all households qualify.
4Price cap projections
Analysts at Cornwall Insight forecast the October-December 2026 price cap will be around £1,849, slightly below the current £1,862 cap. Ofgem will confirm exact figures on 26 August using updated typical consumption values reflecting reduced household energy use.
5Complementary savings
Experts recommend combining the VAT cut with energy-saving measures like unplugging vampire devices or investing in solar solutions. Such steps become particularly valuable during winter when usage of high-consumption appliances like tumble dryers increases.
6Additional support channels
Households struggling with bills should first contact their supplier, who can switch them to cheaper tariffs where available or assess eligibility for further assistance programs. This VAT reduction works alongside existing support mechanisms rather than replacing them.