Energy suppliers have been ordered to pass on VAT cuts to electricity bills to all consumers this winter. Chancellor John Healey and Energy Secretary Miatta Fahnbulleh have written to suppliers to ensure households get the benefit of the reduction from 5% VAT to zero on domestic bills.
VAT cut comes into force October 1
The move, one of Andy Burnham's first pledges as Prime Minister, will come into force on October 1. It is expected to knock about £45 off the annual bill for a typical household, as part of the new PM's efforts to give people a bit of breathing space on the cost of living.
Ms Fahnbulleh told The Mirror: "As Energy Secretary, I want to make one thing absolutely clear to Mirror readers: my focus is on bringing your energy bills down for good."
"That’s why on my first day in the job, we announced a cut to taxes on electricity bills, which will kick in from 1 October. And alongside the Chancellor, I've written to suppliers to make sure savings reach every customer, no matter what tariff they're on."
First step in tackling cost of living
She acknowledged many families still feel their bills are too high despite the move to strip green levies from bills at the last Budget, which the then-Chancellor Rachel Reeves said would take £150 off energy bills. Ms Fahnbulleh said: "This action is just the first step. This is a down payment to give households much-needed breathing space on the cost of living this winter."
"But I am very clear there is much more to do. We will tackle the cost of living with greater public control to make life's essentials affordable again, and bring back hope." Officials are working with the regulator Ofgem to ensure providers pass the saving on to consumers.
Suppliers asked to confirm pass-through
In a letter to suppliers, the Chancellor and the Energy Secretary said: "We are writing today to ask for your confirmation... that you will fully pass through the VAT reduction to all your domestic customers, including those on fixed tariffs, for the duration of the cut to reassure consumers across the country that they will feel these savings."
"We are grateful for the work that you did with government to ensure that the Budget 2025 measures were fully passed on – and expect suppliers to do the same here so that we can collectively ensure that the full benefit is felt by consumers."
Funding and controversy
Downing Street said the new measure - estimated to cost £850 million in 2026-27 - will be funded by savings from the scrapped digital ID programme, which was going to cost £1.8bn over the next three years. However the claim sparked a row as sacked Cabinet Minister Darren Jones, who led on the digital ID plan, said it had not been funded. He posted on X: “The Digital ID program was unfunded. The government will have to set out how it will pay for its new policies at the Budget.”
But Business Secretary Jonathan Reynolds said it was a "straightforward switch spend", redirecting money for digital ID. Departments had been working to find saving for the scheme, which will now be reallocated to pay for the VAT cut.
