Millions of households across Britain are set to see their electricity bills fall this autumn after new Prime Minister Andy Burnham announced VAT will be removed from domestic energy bills from October 1.
The move, worth £850 million, is expected to save the average household around £45 a year, giving families extra help as colder weather approaches.
Announcing one of the first major policies of his premiership, Mr Burnham said the Government wanted to provide immediate support for households facing ongoing cost-of-living pressures: "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."
What it means for households
From 1 October, VAT on domestic electricity bills will fall from 5% to 0%.
The Government says energy suppliers are expected to pass the saving directly on to customers, including those on fixed tariffs.
Officials estimate the measure will:
- Save the average household around £45 a year
- Cost around £850 million in 2026/27
- Help reduce inflation by around 0.10 percentage points
While the exact saving will depend on individual energy use, the announcement is expected to provide welcome relief for millions of families heading into winter.
Funded without increasing taxes
The Government says the measure will be funded by cancelling the previous digital ID programme and reprioritising existing departmental budgets, allowing households to benefit without introducing new taxes.
Chancellor John Healey said the announcement would provide reassurance for families while helping to tackle the cost of living: "For too long, too many people have struggled with the cost of living.
"Today's energy tax cut will give families some breathing room on bills and provide reassurance this winter."
Consumer groups welcome the move
The End Fuel Poverty Coalition described the VAT cut as "a positive statement of intent", saying it would provide welcome support for households facing high energy costs.
Coordinator Simon Francis said the measure gives families valuable breathing space, while adding that further reforms to the energy market could help bring bills down even more in the future.
He added: "The Prime Minister's next move must be to go even further on bringing down the cost of energy and bringing in increased levels of targeted support for those who need it most: an enhanced Warm Home Discount, reformed Cold Weather Payments and an energy debt relief scheme."
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Will there be more tax changes to come?
The announcement comes as Mr Burnham chairs the first meeting of his new Cabinet following a major ministerial reshuffle.
The Prime Minister says the new Government is focused on delivering practical measures that make a difference to everyday life, with cutting household bills among its first priorities.
For millions of households, the removal of VAT from electricity bills is set to provide an immediate financial boost just as energy use typically begins to rise for the winter months.
