VAT to be cut from household electricity bills in October

Image source, Getty ImagesByKevin PeacheyCost of living correspondentPublished21 July 2026, 06:20 BSTUpdated 1 hour agoVAT will be cut from household electricity bills, the government has announced, as part of new Prime Minister Andy Burnham's pledge to help with the cost of living.

The reduction from 5% VAT to zero will come into effect on 1 October, saving a typical household about £45 a year.

Ministers said it would be funded by savings from the cancellation of the digital ID programme, which was going to cost £1.8bn over the next three years. The government estimated it will cost £850m this financial year.

But Labour's Darren Jones, who was sacked as chief secretary to the prime minister on Monday, accused the government of announcing an unfunded tax cut.

Jonathan Reynolds, the new business secretary, said the cut would give people some "breathing space".

He said it was funded until "the end of the financial year" in March 2027 and any changes beyond that would have to be announced in the next Budget.

Suppliers have been told the VAT reduction should be passed on to all household customers, including those on fixed tariffs, as was the case when some charges were taken off bills in April.

The cut will take effect in England, Scotland and Wales, but equivalent funding would be given to Northern Ireland, which is regulated differently, the government said.

The reduction could not be automatically be applied in Northern Ireland due to EU rules limiting the range of goods which can be sold without VAT. Following Brexit, England, Scotland and Wales are not bound by these restrictions.

Small businesses who qualify for the domestic energy VAT relief and are not registered for VAT, as well as charities and residential care homes eligible for the reduced rate, will also benefit.

Cutting VAT is a relatively basic tool to reduce an energy bill - with larger households likely to save more as they use more electricity.

However, some vulnerable households are also high electricity users, such as for running medical equipment.