The VAT cut on household electricity bills begins October 1, with ministers saying it will save a typical home about £45 a year.
VAT on household electricity bills will be cut from five percent as the new government moves to ease the cost of living, with the change due to start on October 1. The VAT cut on electricity bills is being pitched as one of the first signs of Andy Burnham’s new agenda, and ministers say it will leave a typical household about £45 better off each year.
The government said the move will be paid for through savings from scrapping the digital ID programme, which it said would have cost £1.8 billion over the next three years. Officials put the cost of the programme at £850 million in the current financial year. John Healey, the new chancellor, said the measure would offer some reassurance this winter, while Business Secretary Jonathan Reynolds told BBC Breakfast it would give people breathing space, even if it was not the whole answer.
Not everyone accepted the funding explanation. Darren Jones, who was removed as chief secretary to the prime minister on Monday, said the plan amounted to an unfunded tax cut. He wrote on X that the digital ID programme was unfunded, and he welcomed the VAT cut as good while warning the government would need to explain how it would pay for new policies at the Budget. Shadow Chancellor Mel Stride also attacked the decision, saying the digital ID cuts were not real because the money had never been set aside in the first place.
The VAT cut on electricity bills will apply in England, Scotland and Wales, while Northern Ireland will receive equivalent funding because its system is regulated differently. Suppliers have been told the reduction should reach all household customers, including those on fixed tariffs, as happened when some charges were removed from bills in April. Small businesses that qualify for domestic energy VAT relief and are not VAT-registered, along with charities and residential care homes eligible for the reduced rate, will also benefit.
The change comes after energy prices rose by 13 percent for millions of households in England, Scotland and Wales at the start of July under Ofgem’s price cap. The higher costs were linked to gas prices, while analysts warn that pressure from the US-Israeli war with Iran could keep energy prices elevated into winter. The government said the VAT cut will lower inflation by 0.1 percentage points, but it will only last through the current financial year unless a future Budget extends it. The End Fuel Poverty Coalition welcomed the move but said it does not go far enough, arguing that households need deeper support and a lasting fix to how bills are set.
Burnham, in his first speech as prime minister, promised breathing space for families under strain. His government is now under pressure to prove this VAT cut on electricity bills is more than a short-term gesture. For ordinary households, the real test will be whether this brings relief that lasts beyond one winter.
