Prime Minister Andy Burnham has confirmed that VAT on domestic electricity bills will be cut from 5% to 0% on 1 October, a move set to save typical households around £45 a year. The decision, announced as one of his first acts in office, is designed to provide immediate relief on energy costs ahead of the winter months and in time for the next Ofgem price cap adjustment.
The temporary VAT removal applies for this financial year and is fully funded, with the government seeking to cushion households against persistent cost-of-living pressures. According to Downing Street, the measure will directly reduce the annual energy bill for millions of families across the UK, offering a tangible financial breathing space at a time when bills remain a top concern.
VAT cut to ease winter energy bills
The tax change means that domestic electricity bills will no longer carry the 5% VAT rate that has applied for years. From 1 October, suppliers will charge zero VAT on electricity, and the saving will be reflected automatically in customers' bills without any need to apply. The government has stated that the cut will take effect in time to influence the October price cap, giving consumers immediate benefit from the start of the autumn billing cycle.
Cutting VAT on electricity is expected to remove approximately £45 from the annual Ofgem price cap. For a typical household, this represents a modest but meaningful reduction during the colder months when energy usage tends to spike. The Treasury has emphasised that this is only the beginning of a broader strategy to tackle energy costs and support the transition to cleaner transport.
EV drivers see extra savings
While all households will benefit from the VAT cut, electric vehicle owners with home chargers stand to gain even more. David Martell, CEO of home charger company Andersen EV, explained that the savings are especially noticeable for those who charge their cars at home. "For the average EV driver charging at home, the saving on charging alone is likely to be around £20–£25 per year. For higher-mileage drivers, it could be closer to £35–£40," he said.
Martell added that the measure signals a supportive direction for the EV market. "That may not sound transformational on its own, but it’s the direction of travel that matters. It demonstrates a willingness to support the transition with practical measures that make a real difference to consumers."
The move has also been welcomed by motoring organisations, which have long argued that public charging costs should be lower. The Society of Motor Manufacturers and Traders (SMMT) previously warned that VAT rates on public charging "should be reduced to align with the 5% VAT levied on home charging". While the latest cut applies only to domestic electricity, it narrows the gap between home and public charging, potentially encouraging more drivers to consider EVs.
Political context and funding
Chancellor of the Exchequer John Healey, who replaced Rachel Reeves in the role as part of Burnham's first Cabinet reshuffle, framed the decision as a direct response to the cost-of-living crisis. "For too long, too many people have struggled with the cost of living," Healey said. "Today’s energy tax cut will give families some breathing room on bills, and provide some reassurance this winter."
The Chancellor also outlined how the measure is being paid for, linking it to the cancellation of a government digital project. "This measure is funded this year from cancelling the Digital ID programme, and it will help bring down inflation while supporting households in every postcode," he added.
Inflation impact expected
The VAT cut from 5% to 0% is estimated to reduce CPI inflation by around 0.10 percentage points and RPI by around 0.14 percentage points. This modest downward pressure on inflation could provide further economic benefits, potentially influencing interest rate decisions and easing the squeeze on household finances. The Treasury notes that the effect will be felt across the entire economy, as lower energy costs feed through to goods and services.
For EV owners, the combination of lower electricity bills and the existing tax advantages of home charging makes the case for electrification more compelling. As the government continues to push its green agenda, industry experts expect further measures to support EV adoption, including potential adjustments to public charging VAT rates in future reviews.
Households will see the reduction automatically on their October bills, with no additional paperwork or claims required. The government has confirmed that the funding is secure for the remainder of the financial year, providing certainty for consumers planning their winter budgets.
