Martin Lewis, founder of MoneySavingExpert, has cautioned that the UK Government's £45 electricity bill saving could be largely wiped out by higher energy prices expected from October. The warning comes after Prime Minister Andy Burnham announced a six-month removal of VAT on domestic electricity bills from October 1, aiming to provide households with "breathing space" amid the cost of living crisis.
Temporary Tax Cut Details
The VAT reduction is expected to lower the annual Ofgem energy price cap by approximately £45, with suppliers passing the saving to customers. However, Lewis noted that current forecasts indicate the price cap for electricity and gas could rise by around 3.1% from October, adding more than £50 a year to a typical household energy bill.
Lewis stated: "This is a good totemic step and very welcomed. Yet in practice people won't feel much benefit." He explained that the VAT cut gain over six months is "mostly eaten up" by the predicted price cap increase, with a further rise possible in January, though he described that as "far more crystal ball gazing."
Rapid Market Changes
Lewis also highlighted how quickly energy market conditions have shifted. Just ten days ago, the cheapest fixed deals were around 14% below the price cap, but they are now approximately 8% lower after wholesale energy prices rose following conflict in the Middle East. This rapid change, he said, reduces the impact of temporary measures like the VAT cut.
Despite the warning, Lewis stressed that households will still pay less than they would have without the policy: "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."
Focus on Electricity
Lewis endorsed the government's decision to target electricity bills rather than gas, noting that it reverses a trend where gas became relatively cheaper compared to electricity due to previous policies. He said: "The move to focus on electricity prices is logical. It has been strange that govt 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."
Announcing the measure, Prime Minister Andy Burnham stated: "Westminster has not been working for people for too long, with families struggling with the cost of living. That needs to change. I said I wanted to give people breathing space, and that's what this measure will do."
