Andy Burnham Cuts Domestic Electricity VAT to Zero

Prime Minister Andy Burnham announced the removal of the 5% VAT on domestic electricity bills for a six-month period starting October 1, 2026. The policy aims to provide households with breathing space during the winter cost-of-living crisis, with an estimated average annual saving of £45 per household. To fund the £850 million measure, the government scrapped a planned £1.8 billion Digital ID programme.

While the government expects energy suppliers to pass these savings to all customers, finance experts and regulators have questioned the actual impact. Martin Lewis warned that projected rises in the Ofgem energy price cap could offset the VAT cut, potentially reducing the benefit to zero or resulting in a net annual increase for some homes. Additionally, Paul Lewis noted that the £45 saving figure is based on a full year, while the funding is only scheduled for six months.

The policy has drawn sharp criticism from electric vehicle advocates for creating a driveway divide. While home charging becomes cheaper—with estimated annual savings for EV drivers ranging from £20 to £65—public charging stations remain subject to a 20% VAT rate. Industry leaders from Electric Vehicles UK and char.gy argue this penalizes the millions of drivers without off-street parking, entrenching inequality in the transition to electric vehicles. In response to these disparities, the government previously increased home charger installation grants from £350 to £500 in April 2026.