Households in the UK set for £45 reduction in electricity bills later this year — this is everything we know so far

New Prime Minister Andy Burnham has announced that VAT will be cut from household electricity bills from 1 October 2026.

The move, which will see 5% VAT reduced to zero, is expected to cut around £45 from typical annual electricity bills over winter, and will be welcome news to those who already go to significant lengths to save energy at home and reduce their monthly bills.

Speaking less than 48-hours into his new role, Prime Minister Andy Burnham said: 'I said I wanted to give people breathing space, and that’s what I’m announcing on my second day as Prime Minister.

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'We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope.

'Cutting VAT on electricity bills is expected to take around £45 off the yearly Ofgem price cap in October.'

The reduction is set to be passed on to the millions of households in England, Wales and Scotland via their suppliers and is expected to include those on both fixed and standard variable tariffs. While some measures of energy bill relief over recent years have only been available to those in receipt of certain benefits, no such eligibility criteria has been announced for this VAT reduction.

Rules work slightly differently in Northern Ireland, but the government has said that the NI Executive will receive comparable funding to enable it to similarly support households in Northern Ireland.

While the energy price cap figure for the period between 1 October and 31 December 2026 has yet to be announced by the energy regulator Ofgem, current predictions from analysts at Cornwall Insight have the cap sitting at around £1,849 (based on the current typical domestic consumption values of 2,700 kWh per annum for electricity and 11,500 kWh per annum for gas). As a comparison, the current energy price cap is set at £1,862.

The official price cap figure for autumn will be announced on 26 August, and will be calculated using new typical domestic consumption values to reflect a fall in the average household's energy use.

Is it enough to help struggling households?

Is an average £45 annual reduction enough to help households struggling with high electricity bills? In isolation, probably not. But it's a step in the right direction to provide some relief, especially at a time when households are more likely to be using more electricity hungry appliances, like tumble dryers.

When combined with other electricity saving measures, from simply turning off vampire appliances to more involved solutions like investing in plug-in solar panels (when they become available) or a rooftop solar panel array, households can also reduce their energy consumption to lower their bills.

If you are still concerned you won't be able to pay your energy bills over the colder months, reach out to your supplier in the first instance. They will be able to help move you on to a cheaper tariff if applicable, or check your eligibility for further assistance.