Households across the UK are set to benefit from lower electricity costs after the government announced that VAT will be removed from domestic electricity bills from 1 October 2026.
The measure is intended to take effect in time for the next Ofgem energy price cap and forms part of Prime Minister Andy Burnham’s initial programme to ease pressure on household finances.
The government said the immediate cost of the tax reduction during the current financial year will be funded through the cancellation of the £1.8 billion Digital ID programme.
Further measures to reduce energy costs may be considered at the next Budget, alongside updated economic and fiscal forecasts from the Office for Budget Responsibility. The government has said that any additional support will need to be fully funded and consistent with its fiscal rules.
Announcing the measure, the Prime Minister said families had struggled with the cost of living for too long and that the government was taking immediate action to reduce taxes on energy bills and leave households with more disposable income.
The tax cut will apply specifically to household electricity bills. Its effect on individual households will depend on electricity use, tariffs and any wider changes included in the next energy price cap.
The announcement follows a period of sustained pressure on household budgets, with energy costs remaining a significant expense for many families. By reducing the tax charged on electricity, the government hopes to provide some additional financial breathing room ahead of the winter months.
For households, the change should mean a direct reduction in the tax element of electricity bills from October. However, the overall amount paid will continue to be affected by wholesale energy prices, standing charges and future Ofgem price cap decisions.
