Prime Minister Andy Burnham's plan to eliminate VAT on electricity bills is facing criticism from experts, who argue it fails to address the core issue of rising living costs. UK Debt Expert advises households to remain vigilant with their spending, highlighting that average energy bills remain significantly higher than at the start of the year, even with the recent Ofgem price cap adjustment.
Business Secretary Jonathan Reynolds described the policy as a "substantial decision" and a "significant statement of priorities". Chancellor John Healey also said that the measure would offer "reassurance this winter" and provide "breathing space" for households. Energy Secretary Miatta Fahnbulleh also strongly defended the policy as well, saying it is "thought through".
Details of the policy
The measure takes effect on October 1, 2026, running for six months until March 31, 2027. The policy focuses solely on electricity bills. Gas bills still have a 5% VAT included. Families save about £3.75 each month. Companies such as British Gas will automatically apply these savings.
The typical household can expect bills to drop by £45 from October, yet will still pay approximately £48 more overall. Andy Burnham's policy eliminates the 5% VAT rate completely. The £45 VAT reduction offers some respite, though it won't stop overall bills from climbing due to the larger price increase, reports the Express.
Net impact on households
While the Government's VAT cut on electricity will save the average household £45 annually, given the Ofgem Price Cap is forecast to increase by 5.1% from October - adding £93 to typical bills - households will encounter a net annual rise of around £48. As the VAT reduction applies for just six months, the genuine financial advantage to households throughout the winter months will be halved to roughly £22.50.
Andy Burnham introduced the new policy after becoming the 59th Prime Minister of the United Kingdom.
Expert criticism
However, Maxine McCreadie, a spokesperson at UK Debt Expert, argues that the Government "must go further". She said: "It is great to see that, after Andy Burnham has taken office, one of his first acts as leader has been to address household living costs, which continue to push people towards financial crisis."
Yet, she continued: "Energy debt is rising rapidly, and support remains severely lacking. While the VAT relief may help to ease some of the strain, it doesn't address the root of the problem."
"Following the recent Ofgem energy price cap rise, many households are still facing significantly higher bills than they were at the start of the year, leaving millions at risk of fuel poverty. Even with October's reduction, average bills remain around £155 higher than the start of the year, resulting in many families facing impossible choices between paying essential household bills and covering other everyday expenses."
She added: "In the announcement, the prime minister and his new chancellor spoke about the need for breathing space for families, but the reality is that many households' finances are spiralling because of rising costs and more is needed to help people move forward with confidence."
"We always encourage anyone struggling to pay their bills to check whether they're eligible for support schemes and speak to their supplier as soon as possible, as many offer affordable repayment plans or emergency credit to help prevent debts from scaling."
Other reactions
Although Martin Lewis, founder of MoneySavingExpert.com, welcomed the move as a "good totemic step" and a "thought in the right direction", he cautioned that rising winter price caps could heavily dilute the actual savings for households.
The End Fuel Poverty Coalition welcomed the reduction, though cautioned it "does not tackle the extent of the challenges households are experiencing". Simon Francis, the organisation's co-ordinator, argued that Burnham's government must "go even further" to deliver targeted support to those most in need. "This breathing space is also not a cure. The only way to bring bills down for good is to change how they are set," he stated.
On July 23, the British Gas Energy Trust urged the Prime Minister to implement an ambitious, place-based strategy to eradicate fuel poverty, outlining five national priorities to raise living standards and ensure warm homes across Britain. In a letter addressed to the Prime Minister, the Trust sets out how addressing fuel poverty could bolster the Government's ambitions for economic growth and healthier communities across the nation.
