Millions of households across Great Britain will no longer pay VAT on their electricity bills from today, cutting around £45 off the yearly Ofgem price cap. From October 1 to December 31, 2026, the price cap will be £1,723 per year, which is a 4% increase from the previous three-month period.
Price Cap Rise and VAT Removal
The price cap will rise by £60 per year for the average household using both electricity and gas, based on the average energy unit rate and standing charge for people who pay by direct debit in Wales, England, and Scotland.
Removing the 5% VAT charge to electricity bills is aimed at helping households be better protected from rising global energy costs throughout winter until March 2027. You do not need to do anything to claim the savings as it will be deducted automatically with suppliers no longer charging the tax.
Who Benefits and What It Means
Around a third of households are on fixed tariffs and therefore will not be affected by the energy price cap rise. Small businesses, charities and residential care homes that already qualify for the reduced 5% VAT rate on electricity, including through the existing VAT certificate and declaration process, will also benefit from the tax cut this winter.
The VAT cut has been funded for the 2026 to 2027 financial year, through the cancellation of the digital ID programme.
Government and Official Reaction
Prime Minister Andy Burnham said: "For many families, the energy bill is the one they dread the most. I don't accept that it has to be this way, and I am determined to bring down costs for good.
"But I know people can't wait. Families need breathing space now. That's why, from today, VAT is gone from your electricity bill."
Secretary of state for energy security and net zero, Miatta Fahnbulleh MP, said: "I know energy price rises weigh heavily on homes across the UK this winter.
"From today, our VAT cut will give households some much needed breathing space, making the energy price cap £45 a year less than it would have been. This follows the £150 of costs we removed from bills earlier this year.
"Alongside this, we continue to look at what more we can do to protect families from unaffordable bills, as we drive down bills for good through clean power."
