The Labour Party government, led by Andy Burnham, has announced the removal of VAT on electricity bills effective from October 1, bringing the typical household bill down to £879 based on current forecasts.
Details of the VAT Cut
Cornwall Insight's Default Tariff Cap forecast using Typical Domestic Consumption Values (dual fuel, direct debit customer) estimates the cap at £924 from October 1. The £45 VAT reduction would bring this down to £879.
Martin Lewis's Reaction
BBC and ITV star Martin Lewis welcomed the VAT cut on electricity bills but cautioned that “people won't feel much benefit” due to an expected rise in the Price Cap. He shared on social media: “This is a good totemic step and very welcomed. Yet in practice people won't feel much benefit.”
Lewis explained that the energy Price Cap on 1 October for electricity and gas is currently predicted to rise by 3.1 per cent, which on typical bills is over £50 on an annualised basis. “So the VAT cut gain over 6 months is mostly eaten up by that. Especially as the prediction is a further rise in January,” he added.
Context and Impact
Lewis also noted that ten days ago, the cheapest fixed tariff was 14 per cent less than the Price Cap, but now it is only 8 per cent less as wholesale rates have jumped due to the Middle East conflict. He concluded: “Ultimately though it does mean people will pay less than they would've done without this. Yet it is going to need a lot more policy cost reductions, likely at the budget, for things to feel materially cheaper.”
He also praised the focus on electricity prices, saying: “It has been strange that government policy has been to move people away from gas, yet we've seen the gas price get relatively cheaper compared to electricity. This reverses some of that.”
