UK households are set to benefit from a reduction in their electricity bills this autumn, with an estimated annual saving of £45. Prime Minister Andy Burnham announced this morning that Value Added Tax (VAT) will be removed from electricity bills starting 1 October 2026, dropping the current 5% rate to 0%.
This government initiative is intended to ease the cost of living for consumers and is expected to influence the upcoming energy price cap, which also takes effect on 1 October. Prior to this announcement, forecasts for the autumn price cap indicated it would remain at a level similar to the current high rates.
The saving will be automatically applied by energy suppliers across England, Scotland, and Wales. Crucially, this benefit extends to all electricity customers, regardless of whether they are on a price-capped tariff or a fixed tariff – which typically would not see price changes during the contract period. Households will not need to take any action to receive the reduction, which equates to approximately £3.75 off their electricity bill each month.
According to the latest predictions from industry expert Cornwall Insight, a typical combined gas and electricity bill is anticipated to be around £138 per month between October and December. This breaks down to an estimated £65 for gas and £73 for electricity. The removal of VAT from electricity alone means that the overall typical monthly bill will be approximately £1 cheaper than current price-capped rates. These figures are based on a medium household usage, defined by Ofgem as 2,500kWh of electricity and 9,500kWh of gas per year.
The funding for this VAT reduction is confirmed for the current financial year, which concludes on 31 March 2027. For households in Northern Ireland, the NI Executive will receive equivalent funding to provide support with the cost of living, ensuring a comparable benefit across the UK.