Starting October 1, electricity bills will become VAT-free, which the Government claims will save households approximately £45 annually. The initiative will be partially financed by abandoning Sir Keir Starmer's digital ID scheme, which had been projected to cost roughly £600 million per year across three years.
Potential savings for EV owners
EV owners can presently charge their vehicles on their driveways for as little as the equivalent of 1.6p per mile when using the economical EV tariff Intelligent Octopus Go. Octopus' EV tariff enables drivers to charge their vehicles from 8p per kWh during off-peak hours. For an EV with a 100kWh battery, charging would cost £8. With a range of 500 miles, that equates to 1.6p per mile.
However, eliminating VAT from electricity could potentially reduce this to an estimated 1.52p per mile, provided Octopus transfers the VAT savings to customers on this fixed tariff.
BBC expert raises concerns
Yet Paul Lewis from BBC Radio 4's Money Box programme revealed on X that the reduction might not prove as beneficial as suggested - and that the £45 annual figure is 'exaggerated'. He also clarified that the scheme launching on October 1 is actually only established and funded for 6 months - despite the quoted savings being calculated for 12 months.
He remarked: "It gets sillier. The VAT cut is only scheduled to last (and costed) for six months, though it will be hard to put back once taken away. But the much quoted (and exaggerated) £45 saving is over a year! In fact as promised and paid for it will in fact only last for six months".
He continued: "Put another way, scrapping 5% VAT on domestic electricity bills cutting prices by 4.76% will knock about £10 a year off the standing charge and about 1.25p off each unit of electricity used. Boiling a kettle 3x a day for a year may save users maybe £3.64 a year (probably less)."
Inequality concerns
Tanya Sinclair, chief executive of Electric Vehicles UK, has argued that the new Prime Minister's announcement "entrenches one of the biggest inequalities in the UK's EV transition". Speaking to the Press Association, she stated: "Millions of drivers without off-street parking have no choice but to pay 20% VAT when charging in public, while those with a driveway will now pay none at all."
She added: "If this Labour Government is serious about a fair transition, it cannot ask EV drivers to pay different prices for the same electricity simply because of where they live."
Meanwhile, Siobhan Doyle, consumer writer at Carwow, has suggested that removing VAT from domestic electricity "highlights the growing divide in EV ownership". She commented: "If the Government wants to make electric vehicles truly accessible and fair for everyone, equalising public and home charging VAT remains the crucial missing piece of the puzzle."
Simon Williams, RAC head of policy, stated: "We urge the new Prime Minister to give serious consideration to lowering VAT on public EV charging, so that those without driveways can make the switch to electric motoring more affordably."
Grant for those without driveways
EV owners received welcome news earlier this year. Individuals previously deterred from transitioning to an electric vehicle (EV) due to the absence of a driveway were addressed through a rule change that came into effect from April 2026. Tenants and flat owners can now apply for a grant which has been increased from £350 to £500.
The Government confirmed it would typically cover half the installation cost of a home EV charger. For those without driveways, the funding will contribute towards alternative arrangements, such as cross-pavement charging points. Tenants, flat owners, landlords, homeowners lacking driveways, and businesses are all entitled to apply.
Speaking on BBC Radio 4's You and Yours programme in late February, when the changes were initially revealed, Keir Mather, the minister for decarbonisation, explained: "We think it will make a big difference. We are working as hard as possible so that as many people as possible can make the switch to an electric vehicle, but we can only do that if we make it cost-effective to charge from home."
"So by uplifting this grant from £350 to 500, that's going to cover almost half the cost of the typical install of a charge point, about 42% of the cost. But the important point is installing those charge points unlocks those massive cost savings that you can get through home charging of around 2p a mile."
"So that's the equivalent of driving from London to Birmingham for about £3.50. We want as many people as possible to be able to access that, and that's why we're extending the grant today."
