The Westminster Desk | Brief
The first cabinet meeting of the Burnham government produced one measure that lands directly on household bills: VAT is to be scrapped on domestic electricity from 1 October. The Prime Minister told ministers on Tuesday he would lead a "cost-of-living government", and put the value of the electricity cut at about £45 a year for a typical household. Here is what was announced, what the numbers look like, and what to watch between now and October.
What was announced
Domestic energy bills currently carry VAT at 5%. On Tuesday 21 July, at his first cabinet meeting as Prime Minister, Andy Burnham announced that VAT will be removed from domestic electricity bills from 1 October. The announcement covers electricity only: VAT on domestic gas was not mentioned and remains at 5%. The measure was unveiled alongside a reshaped cabinet, with John Healey moving to the Treasury as Chancellor.
What it saves, by usage
Removing 5% VAT from a bill that already includes it cuts the total by roughly 4.8%. Applied to electricity costs under the current price cap, including standing charges, that works out at approximately:
- Low use (about 1,800 kWh a year): around £30 a year.
- Typical use (about 2,700 kWh): around £45 a year, matching the government's own figure.
- High use (about 4,100 kWh): around £60 a year.
- All-electric homes (heat pumps, storage heaters, EV charging): £85 or more, since the whole energy bill is electricity.
These estimates use the current cap rates; the exact figures from October will depend on the rates in force then.
Why the date matters
1 October is also the day Ofgem's next quarterly price cap takes effect, announced in late August. Two changes will land on the same bill at once: the new cap rates, up or down, and the removal of the VAT line on electricity. Whatever an October bill shows, neither the government nor the cap deserves sole credit or blame for the move.
What to watch: the implementing legislation, since a VAT change must be legislated before it can take effect; Ofgem's Q4 cap announcement in late August; and whether gas VAT follows. The desk's energy price cap hub tracks the running numbers.
