The government has confirmed that VAT on household electricity bills will be scrapped from October 1, 2026, reducing the rate from 5% to 0%. The move is expected to cut bills and offer additional support during the colder months.
Average savings and eligibility
The government estimates that households will save around £45 a year from the tax cut, but this depends on how much electricity they use. EDF Energy notes that the amount will vary from household to household, and the £45 figure is only an average.
The cut will apply only in England, Scotland and Wales. Equivalent funding will be provided for Northern Ireland, where the energy market is regulated differently. GOV.UK explains: "The NI Executive will receive comparable funding to enable it to support NI Households with the cost of living to ensure households across the UK benefit."
What households need to know
Most households won't need to do anything, as suppliers will apply the reduction automatically. The government expects all suppliers to pass the VAT cut on in full to every customer, including those on fixed deals.
The cut applies only to electricity. For dual fuel tariffs, the VAT reduction will appear on the electricity section of the bill, while gas will still attract 5% VAT. VAT on energy is set by the government, and the rate can vary between domestic and non-domestic supplies.
Prime Minister's announcement
Prime Minister Andy Burnham announced the change as part of efforts to ease the cost-of-living squeeze. He said: "Westminster has not been working for people for too long, with families struggling with the cost of living. That needs to change. I said I wanted to give people breathing space, and that's what I'm announcing on my second day as Prime Minister. We're taking immediate action to cut taxes on energy bills, put more money in people's pockets and bring back hope."
The VAT reduction takes effect on October 1, 2026, and will apply to electricity bills for households in England, Scotland and Wales, with comparable funding for Northern Ireland.
