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UK Cuts Domestic Electricity VAT to 0% from 2026

7/25/2026

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Summary

Burnham Cuts VAT

Prime Minister Andy Burnham announced the 5 % VAT on domestic electricity will be removed from 1 October 2026, cutting the rate to 0 % and saving about £45 a year.
Funding comes from cancelling the £1.8 billion Digital ID programme, whose cost this year is £850 million to £1 billion.
All suppliers in England, Scotland and Wales must pass the saving to customers, while qualifying small businesses, charities and care homes also receive it.

Summary

Davey Demands Strategy

Liberal Democrat leader Sir Ed Davey called the VAT cut a headline-grabbing move and demanded a broader cost-of-living strategy.
Reform UK leader Nigel Farage argued the cut is only possible because of Brexit and fails to address the core cost-of-living problem.
Conservative Shadow Chancellor Mel Stride slammed the use of the unfunded Digital ID budget to fund the cut, calling it “smoke and mirrors” on public finances.

History

Historical Context

After the 1994 budget added an 8 % VAT on domestic fuel—planned to rise to 17.5 % in 1995 but blocked in December 1994—the Labour government cut that rate to 5 % in July 1997 under Chancellor Gordon Brown, saving roughly £1 billion a year. The 2026 decision to drop the 5 % electricity VAT echoes this earlier relief model.

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Burnham Cuts VAT

Prime Minister Andy Burnham announced the 5 % VAT on domestic electricity will be removed from 1 October 2026, cutting the rate to 0 % and saving about £45 a year.
Funding comes from cancelling the £1.8 billion Digital ID programme, whose cost this year is £850 million to £1 billion.
All suppliers in England, Scotland and Wales must pass the saving to customers, while qualifying small businesses, charities and care homes also receive it.

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