Andy Burnham's first move as Prime Minister, literally his first cabinet meeting, was to announce that the 5% VAT on electricity bills is being scrapped from October. It's an £850 million tax cut, and he's calling it the start of a "cost-of-living government".
What it means for your bill
The average UK household pays around £900 a year for electricity alone (separate from gas). Strip out the 5% VAT, and you're looking at a saving of roughly £43 a year, or about £3.50 a month.
Is £3.50 a month life-changing? No. Is it nothing? Also no. It's real money back in your pocket every month, for as long as the policy stays in place, and it costs you nothing to receive it. No form to fill in, no application, no catch. If you're on a standard tariff, it will be applied automatically.
Context: Energy price cap jump
This comes right after the energy price cap jumped 13% in July, pushing the average dual-fuel bill up to £1,862 a year, largely because of the conflict in the Middle East driving up wholesale gas prices. So while your bill has just gone up, this VAT cut is a small attempt to claw a bit of that back before winter hits.
What you need to do
The 5% reduction will be applied automatically to most energy bills. You don't need to switch tariffs, ring your supplier, or do anything at all – the VAT removal applies automatically from 1 October if you're on a standard variable or fixed tariff.
What I'd suggest is using this as your prompt to actually check your own bill properly before winter – compare what you're paying now against the best fixed deals currently on the market, because for a lot of people, switching tariff will save far more than £43 a year. This VAT cut is a nice bonus, not a reason to stop shopping around.
Burnham promised a "cost-of-living government" on day one, and £850 million is a genuinely significant amount of money to commit before he's even picked his full Cabinet. But translated into your household budget, it works out to roughly the cost of one coffee a month. Worth having? Absolutely. Worth treating as the answer to the cost of living crisis? Not even close. And, with the October energy price cap announcement still to come on 26 August, this is very much one small piece of a much bigger picture.
