Latest energy bill predictions could mean that households do not see any savings from the VAT cut
Money Saving expert Martin Lewis has explained how households will be impacted by the new energy tax reduction announced by Andy Burnham this week. The Prime Minister has confirmed that electricity bills will be exempt from VAT from October 1, that initially predicted a cut of £45 from a typical household’s annual bill.
However since updated predictions for the Energy Price Cap have been published indicating that a Price Cap rise of 5.1% could be seen in October that “will wipe out any household savings from the VAT cut”, says the expert.
The announcement comes amid predictions that energy prices will remain raised throughout the coming winter, following a £221 rise to the price cap which came into effect on July 1, pushing it to £1,862 per year. For money-saving tips, sign up to our Money newsletter here
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. We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope.”
The energy price cap has been projected for October.
Martin Lewis spoke of the projections saying: “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).”
The Money Saving Expert founder contacted major UK energy suppliers to ask if they’ll pass on the reduction to all customers from October. Ten firms confirmed they will including:
- 100 Green
- British Gas
- EDF
- E.on Next
- Fuse
- Good Energy
- Octopus
- So Energy
- Utilita
- Utility Warehouse
Martin Lewis detailed how the the move will work in more detail as he explained that it will see VAT on electricity bills cut from 5% to zero between October 1 2026 and March 31 2027.
He also explained that the cut will only apply to electricity bills meaning those with dual fuel bills for gas and electricity will only see the reduction on the electricity they use.
It will be funded in part by scrapping Sir Keir Starmer’s, digital ID project that had been estimated to cost around £600 million-a-year over three years. Funding for the ID scheme was due to have come from savings within existing departmental budgets, which will now be reprioritised to fund the VAT cut.
You must be logged in to post a comment Login