Following Prime Minister Andy Burnham‘s announcement of scrapping VAT on electricity bills, some experts say the change still “doesn’t address the root problem”. It comes as UK Debt Expert has called for further support for households.
The organisation stresses that, despite this month’s increase in the Ofgem energy price cap, the average energy bill is still “significantly more expensive” than at the start of the year. With the cost of living remaining high for many people, keeping tabs on bills and outgoings is vital.
The average home can expect bills to be £45 cheaper from October, but they will still have to pay around £48 more. Andy Burnham’s policy gets rid of the 5% VAT rate entirely. The £45 VAT cut provides some relief, but it won’t prevent overall bills from increasing because of the bigger price surge.
The change starts on October 1, 2026, and lasts for six months, ending March 31, 2027. Key factors include:
- The policy targets power bills exclusively.
- Gas bills still include 5% VAT.
- Households save roughly £3.75 every month.
- Providers like British Gas will pass savings automatically.
While the Government’s VAT cut on electricity will save the average household £45 annually, because the Ofgem Price Cap is projected to rise by 5.1% on October 1 – adding £93 to typical bills – households will face a net annual increase of approximately £48. Plus, as the VAT reduction is only for six months, the actual financial benefit to households over the winter period will be halved to roughly £22.50.
Business Secretary Jonathan Reynolds has spoken highly of the policy on BBC Breakfast, calling it a “substantial decision” and a “significant statement of priorities”. Chancellor John Healey also told the public that the move would provide “reassurance this winter” and create “breathing space” for households.
But Maxine McCreadie, a spokesperson at UK Debt Expert, claims that the Government “must go further”. She said: “It is great to see that, after Andy Burnham has taken office, one of his first acts as leader has been to address household living costs, which continue to push people towards financial crisis.”
However, she added: “Energy debt is rising rapidly, and support remains severely lacking. While the VAT relief may help to ease some of the strain, it doesn’t address the root of the problem.
“Following the recent Ofgem energy price cap rise, many households are still facing significantly higher bills than they were at the start of the year, leaving millions at risk of fuel poverty. Even with October’s reduction, average bills remain around £155 higher than the start of the year, resulting in many families facing impossible choices between paying essential household bills and covering other everyday expenses.”
She continued: “In the announcement, the prime minister and his new chancellor spoke about the need for breathing space for families, but the reality is that many households’ finances are spiralling because of rising costs and more is needed to help people move forward with confidence.
“We always encourage anyone struggling to pay their bills to check whether they’re eligible for support schemes and speak to their supplier as soon as possible, as many offer affordable repayment plans or emergency credit to help prevent debts from scaling.”
The End Fuel Poverty Coalition expressed approval of the reduction, but stated it “does not tackle the extent of the challenges households are experiencing”. Simon Francis, the group’s co-ordinator, said that Burnham’s government needs to “go even further” to provide targeted assistance to those who need it most. “This breathing space is also not a cure. The only way to bring bills down for good is to change how they are set,” he said.
The British Gas Energy Trust has today, July 23, called on the Prime Minister to adopt a bold, place-based plan to end fuel poverty, setting out five national priorities to improve living standards and deliver warm homes across Britain.
In a letter to the Prime Minister, the Trust outlines how tackling fuel poverty can support the Government’s mission for economic growth and healthier communities in every postcode. The accompanying policy paper highlights fuel poverty as one of the most significant barriers to raising living standards, with millions of households still struggling with unaffordable energy costs.
Commenting on social media platform X, MoneySavingExpert.com founder Martin Lewis said: “I’ve just got the latest energy bill predictions. The average of three sources show the Price Cap rising 5.1% on 1 October – as the last week has seen very high wholesale rates. An annualised rise of £93 on a typical bill.
“If this happens, it will wipe out any household savings from the VAT cut during that Price Cap period (those on fixes will still see a 4.8% reduction).”