Cutting VAT from electricity bills is positive but 'not a cure', energy campaigner says
The removal of VAT from electricity bills is positive, but it does not address the scale of the problem British households are facing, campaigners at the End Fuel Poverty Coalition have said. Simon Francis, coordinator of the group, said the move offers only limited relief for households already facing high bills and energy debt.
Removing VAT from electricity bills is a positive statement of intent by the new administration. But it does not address the scale of what households are facing, with millions still left paying an unaffordable share of their income on energy and record levels of energy debt built up over successive winters of high bills. The prime minister’s next move must be to go even further on bringing down the cost of energy and bringing in increased levels of targeted support for those who need it most: an enhanced warm home discount, reformed cold weather payments and an energy debt relief scheme. This breathing space is also not a cure. The only way to bring bills down for good is to change how they are set. That means breaking the link between gas and electricity prices, tackling excess profits in the energy industry and ending our exposure to volatile fossil fuel markets through homegrown renewables and more energy efficient homes.
By contrast, many in the energy industry welcomed Burnham’s move, including Martin Pibworth, chief executive of SSE, who said the cut would give immediate relief to homes and businesses and help support electrification of the economy.
Cutting VAT gives immediate relief to homes and businesses and is a very welcome first step to making electricity as cheap as possible. Electrifying our economy is the way we take advantage of cheap, homegrown renewable power to cut bills, reduce energy dependence and boost economic growth.
SSE added that its analysis found that 70% of the increase in domestic energy bills since 2017 has been driven by global commodity prices and inflation.
What has Andy Burnham announced on household electricity bills?
New prime minister Andy Burnham announced this morning that VAT will be cut from household electricity bills as part of his plan to help with the cost of living. The prime minister said he will remove the levy from 1 October, in a move that is expected to take around £45 off the yearly price cap set by the energy regulator.
The government said the decision would be funded by savings from the cancellation of its digital ID programme, which was expected to cost £1.8bn over the next three years. Ministers said the VAT cut is estimated to cost around £850m in 2026/27 based on forecasts for electricity prices.
Westminster has not been working for people for too long, with families struggling with the cost of living. That needs to change. 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.
It comes just a day after Burnham officially became prime minister with a pledge for a “new economic model” for the country. But the government added this morning that “any further action, including on funding for longer-term measures, will be taken at the budget, and all decisions at that point will be funded and also consistent with the government’s fiscal rules.”
How are investors likely to respond?
Investors will be watching the bond market carefully today as it weighs the appointment of Burnham’s new cabinet, including the surprise appointment of former defence secretary John Healey as chancellor. Public sector finance figures released this morning may also provide support.
Borrowing for June came in at £15.989bn, below expectations of £18bn and down from £23.94bn a year earlier. The difference between total public sector spending and income was £16bn in June 2026, according to data from the Office for National Statistics. This was £7.9bn (33.1%) less than in June 2025.
It was also £300m lower than the Office for Budget Responsibility (OBR) forecast, largely because of lower inflation-linked debt interest costs. The figures should offer some comfort to bond investors today, alongside Healey’s comments last night.
Fiscal control is the first duty of any chancellor. It is mine. And fiscal credibility is the bedrock for economic stability and for national security, and you heard the prime minister this afternoon say, in this more dangerous world, we will meet our commitments on defence to our international allies…
What else is on the agenda?
At 7am BST, the Office for National Statistics is due to publish labour market figures and public finances. Today, new PM Andy Burnham is also expected to announce further cost of living measures.
Key Facts
- Andy Burnham said VAT will be removed from household electricity bills from 1 October.
- The move is expected to reduce the annual price cap by around £45.
- The policy is estimated to cost around £850m in 2026/27.
- June public sector borrowing came in at £15.989bn, below the £18bn forecast.
- The government said the VAT cut would be funded by cancelling its digital ID programme, expected to cost £1.8bn over three years.
