Andy Burnham proposes VAT cut on electricity bills

Households across Great Britain could see a reduction in their electricity bills from October 2026, following Andy Burnham's proposal to cut Value Added Tax (VAT) on electricity from 5% to 0%. This measure aims to provide financial relief amidst ongoing cost of living pressures. The current VAT rate on domestic energy in the UK stands at 5%.

While government proposals like the VAT cut offer temporary relief, Fuse Energy focuses on long-term solutions for managing your energy costs. We provide transparent pricing and tools to help you understand and control your usage. Click here to switch to Fuse Energy today.

Understanding Andy Burnham's energy VAT cut proposal

The specifics of the plan

Andy Burnham's proposal involves cutting the VAT rate on household electricity bills from 5% to 0%. This change is set to take effect from 1 October 2026 and will last for six months, concluding at the end of March 2027. The proposal anticipates this move will save an average household around £45 over the year1. Energy suppliers are expected to automatically apply this reduction to customers' electricity bills, including those on fixed tariffs.

Political context and rationale

The proposal is positioned as a direct response to the cost of living crisis. Andy Burnham stated it is intended to give people breathing space and put more money in people's pockets. The policy is estimated to cost the Exchequer approximately £850 million in the 2026/27 financial year. Funding for this VAT cut is planned to come from scrapping the digital ID scheme. However, the proposal has faced some scrutiny regarding its funding and its effectiveness as a targeted measure, with some critics suggesting that wealthier households, who typically use more electricity, might see larger cash savings.

Potential impact on UK household energy bills

Calculating the savings

A 5% reduction in VAT on electricity bills would directly decrease the cost of electricity by approximately 4.76% for consumers, as VAT is removed from the total price. For a household paying £1,000 a year for electricity, this would translate to a saving of about £47.62. The Institute for Fiscal Studies (IFS) estimates that the average household paying the Ofgem Price Cap will save around £25 over the six-month period of the VAT cut. It is important to note that this VAT cut applies only to electricity bills, not to gas bills, which will continue to be charged at the 5% VAT rate. In Northern Ireland, the VAT cut will not apply due to post-Brexit arrangements, but the Stormont government will receive funding to implement equivalent support.

Broader economic considerations

The government suggests that removing VAT from electricity bills will help to reduce the Consumer Prices Index (CPI) measure of inflation by approximately 0.10 percentage points. While the measure aims to provide immediate relief, its overall economic impact and targeting have been debated. Critics argue that a VAT cut is not the most effective way to help low-income households, as those with higher electricity consumption will see greater cash savings. The policy also creates a discrepancy where domestic gas remains subject to VAT while electricity does not.

Beyond VAT cuts: long-term energy affordability

Current government support and energy-saving measures

While proposals like VAT cuts offer short-term relief, several government schemes already exist to help households manage energy costs and improve efficiency. These include the Warm Home Discount, which provides a one-off discount of £150 on electricity bills for eligible low-income households. Other initiatives such as the Winter Fuel Payment and Cold Weather Payment offer support for heating costs. For energy efficiency improvements, schemes like the Boiler Upgrade Scheme and the Great British Insulation Scheme provide grants and funding to help with the installation of renewable heating systems and insulation. The Energy Company Obligation (ECO) also supports low-income households with energy efficiency measures.

Beyond these schemes, individual actions can significantly reduce energy consumption. Ofgem also provides advice on how to save money on your energy bill. Simple steps like optimising heating system settings, ensuring adequate insulation, and switching off appliances at the wall can lead to noticeable savings.

Structural solutions for sustainable savings

For lasting energy affordability, structural changes and long-term investments in home efficiency are crucial. Upgrading to solar panels and installing solar batteries can significantly reduce reliance on grid electricity and provide a buffer against price fluctuations. Improving insulation, installing double-glazed windows, and using energy-efficient appliances are also effective long-term strategies. These measures not only lower bills but also contribute to a more sustainable energy future.

How Fuse Energy empowers consumers

Our approach to abundant and affordable energy

Fuse Energy believes in a future where energy is so abundant it ceases to be a concern. We challenge the scarcity mindset that often necessitates temporary interventions like VAT cuts by focusing on structural solutions for cheaper, cleaner energy. Our vision is to deliver terawatt-hours of the cheapest, cleanest energy possible, empowering you with "power to play with."

Taking control of your energy costs

Fuse Energy offers a concrete path to sustained energy savings and control, contrasting with the reactive nature of political proposals. We aim to put the power back into your hands through transparent pricing, an all-in-one app for managing your usage, and 24/7 human customer support. By focusing on rebuilding the energy system from the ground up, Fuse provides a consistent and tangible way for you to reduce your energy bills, offering a long-term alternative to reliance on government interventions.

Managing your energy bills should be clear and easy to understand. Fuse Energy focuses on straightforward pricing, so you can see exactly what you're paying without unnecessary complexity. If you have a smart meter, you can view detailed usage data through the app or website, helping you understand how you can lower your bills. If you do not have a smart meter, Fuse Energy can upgrade your non-smart meter, completely for free. This can make it easier to track spending and make informed decisions about your energy use. Our 24/7 human support team is always on hand with fast response times of under 5 minutes whenever you need help. Click here to switch to Fuse Energy today. Find out about our mission by clicking here.

References

1. The Guardian. What will Andy Burnham's VAT cut on electricity bills mean for you?