What will Andy Burnham’s VAT cut on electricity bills mean for you?
Andy Burnham, the new prime minister, has announced a six-month suspension of VAT on household electricity bills in Great Britain, effective from 1 October 2026, as his first cost-of-living measure. The move is designed to ease pressure on households through the winter, when energy costs typically peak, though its benefits vary widely depending on how much electricity a household uses and whether they rely on gas or electricity for heating.
Households normally pay 5% VAT on electricity, calculated on both the standing charge and units used; removing this is expected to cut the annual price cap by roughly £45 for a typical household, though actual savings depend on usage. Those on fixed-rate tariffs will also benefit, as VAT is still applied to their bills. Northern Ireland is excluded due to post-Brexit rules tying it to EU VAT rates, though Stormont will receive separate funding for cost-of-living support. Critics, including the IFS and National Energy Action, note the policy favours high electricity users and green-technology adopters over the many low-income households that heat with gas, since gas prices have risen far more sharply since the Iran war.
In short
- Burnham scraps VAT on GB electricity bills for six months from October
- Typical household could save about £45 annually
- Northern Ireland excluded; gas-heated, low-income homes benefit least
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
The government faces an urgent cost-of-living crisis with winter approaching and energy bills peaking; this VAT cut provides immediate relief to all electricity-using households, including those adopting electric heating and heat pumps aligned with net-zero commitments. Though modest, it offers tangible savings during the most difficult months whilst longer-term solutions are developed, and any direct bill reduction is valuable for stretched households.
The case against
The policy fails to target those most in need, as gas heating remains far more common amongst low-income households who have seen sharper cost rises; a flat VAT reduction is regressive, delivering larger savings to higher-usage and better-off households whilst inadequately helping the most vulnerable. At £45 annually on a temporary basis, the measure seems insufficient to the crisis's scale, particularly as it ignores the fuel causing the greatest hardship and misses an opportunity to concentrate support where need is greatest.
Explained simply
Households in Great Britain currently pay 5% VAT on their electricity bills, adding to their energy costs each month. With energy prices having risen significantly in recent years, this tax has become a notable burden for many families.
The new prime minister, Andy Burnham, has announced that this VAT will be temporarily removed for six months starting from 1 October 2026 to help households through the winter. For a typical household, this is expected to save roughly £45 a year, though actual savings depend on how much electricity a household uses.
The relief will vary across the population. Those who use lots of electricity or heat their homes with electric systems will see bigger savings, whilst households heating with gas will benefit far less. Northern Ireland is excluded due to post-Brexit VAT rules, though the government will provide separate cost-of-living support funding there.
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