Households in the UK could save around £45 a year after the Prime Minister introduced a change to energy bills. On Wednesday (August 26), Ofgem confirmed that the energy price cap will rise by four per cent from October 1 to December 31, reaching its highest level in three years. This will increase the average household bill by £60 annually, rising to £1,723 for a typical household using both gas and electricity if sustained at that level for a full year.
VAT removed from electricity bills
With households concerned about a more costly winter, Andy Burnham announced a change that will limit the rise in Ofgem’s energy price cap to protect families from 'unaffordable bills.' From October 1, 2026, VAT will be cut from household electricity bills, saving each household an average of £45 per year. It follows the £150 of costs removed from bills earlier this year.
Usually, energy suppliers add up the amount of electricity used in a given period, along with your daily electricity standing charge, and apply five per cent VAT to that part of your bill. But this requirement will now be removed until December 31, 2026, with all suppliers not to charge VAT on your electricity bill. That includes fixed energy tariffs where you have already locked in your rate.
Who benefits from the VAT cut
According to the Department for Energy Security and Net Zero, households do not need to do anything to claim the savings. The exact amount you save will depend on the price of electricity your supplier sets and how much electricity you use.
When you top up your pre-payment meter, VAT is automatically charged on the money you load onto your key or card. From October 1, 2026, VAT will no longer be applied. Small businesses, charities and residential care homes that already qualify for the reduced five per cent VAT rate on electricity, including through the existing VAT certificate and declaration process, will also benefit from the 0 per cent rate this winter.
Funding and additional support
Through the cancellation of the digital ID programme, the VAT cut has been funded for the 2026 to 2027 financial year. The Department for Energy Security and Net Zero also states that around 6 million households are also eligible for the Warm Home Discount this winter, which provides a further £150 off electricity bills.
