The government has confirmed that VAT on domestic electricity will be scrapped for six months from 1 October 2026, a move billed as a direct response to the ongoing cost-of-living crisis. The temporary reduction from the current 5% rate to 0% is intended to provide some relief for households facing high energy costs, but consumer finance expert Martin Lewis has urged caution over the real-world impact.
Speaking on BBC Radio 4's Money Box, Lewis explained that while the VAT cut will reduce the unit price of electricity, it does not affect the daily standing charge, which has risen sharply in recent years. For a typical household using 2,900 kWh of electricity per year, the saving over six months works out at roughly £30 to £40 — far less than the £100 some might expect. 'It's a welcome gesture, but it's not a game-changer,' Lewis said.
Energy bills remain significantly above pre-crisis levels. The average annual dual-fuel bill is currently around £1,850, with electricity accounting for roughly 60% of that total. Food prices have risen 4.2% year-on-year as of June 2026, and average UK house prices have edged up 1.8% to £285,000, according to the latest ONS data. Mortgage rates remain elevated at around 5.5% for a two-year fixed deal, adding pressure on homeowners.
For those on low incomes, the government's Warm Home Discount scheme — which provides a £150 rebate on electricity bills for eligible households — continues alongside Universal Credit. However, Citizens Advice warns that many eligible families are still not claiming the discount. The charity recommends checking eligibility via its online tool and contacting your energy supplier directly.
To reduce costs further, MoneySavingExpert suggests simple steps such as switching to a fixed-rate tariff if available, using a smart meter to track usage, and turning down the thermostat by one degree — which can save around £80 a year. 'Every little helps, but don't rely on the VAT cut alone to fix your finances,' Lewis added.