VAT Cut on Electricity Bills: £45 Saving From October
Your electricity bills are about to get cheaper. From October 2026, the government will remove VAT on electricity, saving the average household around £45 a year. It’s a welcome bit of breathing room for millions struggling with energy costs.
Here’s what you need to know.
How much will you save?
The VAT cut means electricity will no longer be charged at the standard 20% rate. The government estimates this will reduce bills by an average of £45 annually — not a fortune, but real money for households already stretched by the cost of living crisis. If you’re on a low income or in a fuel-poor home, every pound counts.
When does it start?
The change takes effect in October 2026. You won’t need to do anything — your energy supplier will apply the reduction automatically when your bills are calculated from that date onwards.
How is the government paying for it?
Chancellor John Healey has funded the move by cancelling the digital ID programme, meaning no other taxes or benefits are being cut to pay for this relief.
What about gas?
This announcement covers electricity only. Gas bills remain at the standard 20% VAT rate, so if you use both fuels (as most UK households do), your total energy savings will be less than £45.
What should you do now?
There’s no action needed on your part right now. Your supplier will handle the VAT adjustment automatically. However, it’s worth:
- Checking your recent bills to understand your current spending
- Using this autumn to review your energy use — insulation, draught-proofing, and efficient appliances can save far more than £45 a year
- Looking at whether you’re on the best energy tariff for your usage
If you’re struggling with energy bills now and can’t wait until October, contact your supplier about payment plans, or visit StepChange (stepchange.org) or Citizens Advice (citizensadvice.org.uk) for immediate help with debt or budgeting support.