Energy bills: Andy Burnham to cut VAT on electricity to help customers save £45 a year

Andy Burnham has announced that he will cut VAT on electricity bills in the first official policy announcement of his premiership.

The cut, which will be implemented from 1 October when the final price cap of 2026 comes into effect, will save customers an average of £45 a year. The actual saving will vary depending on the amount of electricity used.

This is the first in a series of planned moves to help bring down the cost of living, which Burnham has identified as a key aim for his first months in office.

Burnham said: “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.”

Richard Neudegg, director of regulation at Uswitch.com, comments: "Removing 5% VAT on electricity bills from 1 October will be warmly welcomed by households as they head into the colder months, when energy use rises sharply.

"This change applies to electricity, not gas, but it will apply across the board regardless of tariff type, so if you switch to a fixed deal now, you’ll still get the tax saving from October.

"There is continued pressure on wholesale prices, driven by the situation in the Middle East, meaning it is likely that the October 1 price cap will increase. Some supplier predictions suggest the next price cap could rise 5% from October for a household with both gas and electricity, so this tax change could take the sting out of a potential increase.

"There's still time for customers to lock in significant savings before winter by switching to a good-priced fixed tariff. 

“The cheapest deals are currently undercutting standard rates by £210 for the average household. Doing so on top of this VAT change could leave households considerably better off over the winter."

How is this VAT cut being paid for?

Officials have said that this cut will be funded by the scrapping of the mooted digital ID scheme that was a policy of former prime minister Sir Keir Starmer, which will save £1.8 billion over the next three years.

Is VAT also being cut on gas?

No, this is for electricity only.

What should customers do?

While this is a welcome intervention on the cost of living, it shouldn't substantially affect any plans you might have to switch, because the savings are still much more substantial than the £45 per year this tax cut will provide. You won't forfeit this saving if you switch before it comes into effect, so if you're on a standard variable tariff, there are many fixed deals available that can help you save around £200 a year, so run a comparison to see what's out there.