0% VAT rate on domestic electricity bills begins for 6 months

VAT on domestic electricity bills was reduced from 5% to 0% for six months from 1 October 2026, under a measure announced in July, a day after Andy Burnham became Prime Minister¹. The cut runs until 31 March 2027 and applies to all tariffs, including fixed deals². The government said it could save households an average of £45 a year¹; the Resolution Foundation put the value at around £45 per year to the "typical" household³.

The reduction sits alongside a rise in the Ofgem price cap. From 1 October to 31 December 2026 the cap rose by 4% for a typical household using gas and electricity and paying by Direct Debit, taking the headline figure to £1,723 a year, up from £1,663⁴. The electricity figures in that cap reflect the temporary removal of VAT from domestic electricity bills; the gas figures include 5% VAT⁴. Ofgem's average rates across England, Scotland and Wales under the new cap are:

Source: MoneyMagpie, figures checked 24 September 2026⁴. The House of Commons Library gives slightly different averages under the October cap, with electricity at 26.3 p/kWh and gas at 8.0 p/kWh, and says the electricity standing charge falls by 2.4 p/day while the gas standing charge rises by 0.7 p/day⁵. The two sets of figures are not identical.

The government expects suppliers to pass the electricity VAT reduction on to customers, including people on fixed tariffs⁴. The cut has been funded for the 2026 to 2027 financial year, in part by scrapping the digital ID project, which had been estimated to cost around £600 million a year over three years¹. Helen Miller, director of the Institute for Fiscal Studies, said she was "disappointed" by a policy that creates more complexity in the tax system and will be "hard to undo" after a year¹. Martin Lewis of MoneySavingExpert said the cut was "a good totemic step and very welcomed" but that "in practice people won't feel much benefit"¹.

In Northern Ireland, Economy Minister Dr Caoimhe Archibald said she was working to finalise an agreement with Treasury to increase the discount made to households' electricity bills, proposing that the VAT reduction be added to the previously announced NIRO Domestic Electricity Discount Scheme⁶.

The discount of circa £30 was due to apply in September, while the VAT discount is due to be applied in Britain in October; the combined discount is now proposed for October, with the funding associated with the VAT reduction still to be confirmed by Treasury⁶.

Why it matters for households

The change affects domestic electricity bills in Great Britain from 1 October 2026 to 31 March 2027, and applies to all tariffs including fixed deals². It does not apply to gas, which still carries 5% VAT⁴. Because the VAT cut coincides with a 4% rise in the price cap, the net effect on a dual-fuel household depends on how much of each fuel it uses: Ofgem estimates gas bills rise by around 8% under the new cap, while households that do not use gas see an increase of less than 1%⁴. The cap applies to default or standard variable tariffs and does not cover business energy contracts, heating oil or heat networks in the same way⁴. The cap limits the rates a supplier can charge, not the total bill⁴. The Warm Home Discount is a separate one-off £150 electricity bill discount for eligible households, and the 2026/27 scheme is due to reopen in October⁴. For help with cutting household bills, and on how tax applies to energy, the site's guides set out the general position.

What happens next

The VAT reduction is due to remain in place for the rest of the financial year⁷ and to end on 31 March 2027². The Autumn Budget will be delivered on Wednesday 28 October 2026, with the Office for Budget Responsibility publishing updated forecasts for growth, inflation, borrowing, debt and government revenues alongside the Chancellor's speech⁷. The price cap is currently forecast to increase by a further 9% in the first quarter of 2027⁵.