Households could save around £45 a year under a new October electricity tax change.
Households could see their electricity bills fall following the October change. (Image: Getty)
Households could see their electricity bills fall by around £45 a year following a new tax change. Households across Britain are being told to check their energy bills following a new electricity tax change introduced on October 1, with the Government expecting the move to reduce the annual energy price cap by around £45. The measure removes VAT from household electricity bills and is intended to ease pressure on families as colder weather approaches and energy use typically rises during the winter months. However, the saving is an estimate rather than a guaranteed reduction for every household. The amount people benefit will depend on their electricity consumption, energy tariff and supplier.
Around a third of households are on fixed energy tariffs and are not directly affected by changes to the Ofgem price cap. The Government expects energy suppliers to pass on the VAT reduction to these customers too, potentially helping to lower their bills.
Ministers have also encouraged households to compare available energy deals to see whether they could find a cheaper tariff. The VAT cut forms part of the Government’s wider programme of measures aimed at easing everyday costs for households.
Prime Minister Andy Burnham said energy bills remained one of the biggest financial worries for families and insisted the Government was determined to reduce costs. He said: “For many families, the energy bill is the one they dread the most. I don’t accept that it has to be this way, and I am determined to bring down costs for good.”
“That’s why, from today, VAT is gone from your electricity bill,” he said. The Government said the latest measure follows other plans intended to ease household pressures, including a proposed £2 cap on bus fares from January and changes to business rates for pubs, social clubs and live music venues.
The figure is an estimate, meaning not every household will see the same reduction. The amount people pay will depend on their electricity consumption, tariff and supplier.
The Government says removing VAT from electricity bills will help ease cost-of-living pressures. (Image: Getty)
Households that use more electricity may experience a different impact from those with lower consumption. Customers on fixed deals should check how their supplier is applying the reduction rather than assuming their monthly direct debit will automatically fall by a set amount.
The Government said the measure builds on £150 of costs removed from energy bills earlier in the year, alongside an expansion of the Warm Home Discount to around six million households.
The Warm Home Discount provides eligible households with help towards their energy costs, while the wider Warm Homes Plan is intended to improve energy efficiency and reduce bills over time.
Alongside the immediate tax cut, ministers say they want to reduce the UK’s exposure to international energy price shocks.
The Government has also expressed plans for greater public involvement in the energy system, including a proposed publicly owned body within Great British Energy called Great British Grid.
The organisation is intended to help improve the electricity grid, speed up connections for businesses and support wider changes to the energy market.
Ministers have also pointed to investment in domestic clean energy and nuclear power, including the delivery of Sizewell C, as part of their longer-term strategy.
Chancellor John Healey said the VAT reduction would help limit pressure on bills as winter approaches.
He said: “This tax cut will help keep energy bills down a bit as we head into the winter.”
Energy Security and Net Zero Secretary Miatta Fahnbulleh said the reduction would provide households with “some much needed breathing space”, reiterating the Government’s commitment to lowering bills through clean energy.