Story perspectives

VAT Cut on Electricity Saves £45, Costs £850 m

7/21/2026

Center

Burnham Cuts Electricity VAT

Prime Minister Andy Burnham announced that VAT on domestic electricity will be removed from 1 October 2026.
The reduction, which also covers qualifying small businesses, charities and residential care homes, is warned by the Resolution Foundation to chiefly benefit higher-income households.
Chancellor John Healey said the cut will lower average annual electricity bills by about £45 (4.8 %).
The government estimates the measure will cost £850 million in the 2026-27 fiscal year.

Left

Burnham Cuts VAT

Prime Minister Andy Burnham announced that VAT on domestic electricity bills will be removed from 1 October 2026.
Critics say the cut is funded by an unfunded digital ID programme that produced no savings.
The cut will save the typical household about £45 per year while costing the Exchequer roughly £850 million in 2026-27.
Former minister Darren Jones and Conservative leader Kemi Badenoch called the scheme unfunded and warned about its financing.

Blindspot

Former minister Darren Jones and Tory leader Kemi Badenoch said the VAT cut is unfunded and warned about the lack of a clear financing plan.
Within this story's sources, this criticism appears mainly in Left-leaning coverage and receives less attention in Center-leaning coverage.

History

Historical Context

After the UK joined the European Economic Community on 1 January 1973, Chancellor Anthony Barber replaced Purchase Tax with a 10 % value-added tax on most goods, including domestic electricity. A 1994 reform added an 8 % VAT on household fuel, later raised then rescinded, showing how abrupt rate changes strain public finances. Today the proposal to scrap electricity VAT echoes that 1973 experience.

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Burnham Cuts Electricity VAT

Prime Minister Andy Burnham announced that VAT on domestic electricity will be removed from 1 October 2026.
The reduction, which also covers qualifying small businesses, charities and residential care homes, is warned by the Resolution Foundation to chiefly benefit higher-income households.
Chancellor John Healey said the cut will lower average annual electricity bills by about £45 (4.8 %).
The government estimates the measure will cost £850 million in the 2026-27 fiscal year.

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