Government temporarily removed 5% VAT from electricity bills until March 31 next year

The government has temporarily reduced VAT on household electricity bills from 5% to 0%, running from 1 October 2026 until 31 March 2027¹. The cut is worth around £45 a year to a "typical" household². VAT on gas remains at 5%³.

The reduction applies to all tariffs, including fixed deals¹. It is reflected in Ofgem's price cap figures for the fourth quarter of 2026: under the direct debit cap the average electricity price rises by 1% to 26.3 p/kWh in October 2026, and the electricity standing charge falls by 2.4 p/day, with the published values including the effect of the VAT removal⁴. The average gas price under the same cap rises by 9% to 8.0 p/kWh, and the gas standing charge rises by 0.7 p/day⁴.

The cut arrives alongside other movements in bills. The price cap rose by 4% in the fourth quarter of 2026⁴, and the Resolution Foundation notes the cap had already increased by 13% from the second to the third quarter of 2026². Under the July to September 2026 cap the average annual bill for typical gas and electricity consumption was £1,663, which the Commons Library says is 18% higher than the recent low in July to September 2024⁴. Bills for typical consumption under the October to December 2026 cap will be 58% higher than in winter 2021/22⁴.

The Resolution Foundation said the cut "will take some of the sting away" from recent price jumps, but added that it "does little for households worrying about gas heating costs as colder nights draw in", noting that 84 per cent of homes are on the gas grid².

Why it matters for households

The cut applies to every household electricity bill in the UK, whatever tariff they are on, including fixed deals¹. It runs for six months only, so the zero rate ends on 31 March 2027 unless extended; no extension has been reported. Because the reduction is a percentage of the electricity charge, the cash amount varies with usage: households using more electricity get more in cash terms, and those using less get less. Gas bills are unaffected, which matters because gas is the dominant heating source in Britain, with 84 per cent of homes on the gas grid².

The saving sits against a rising cap. The cap increased by 4% in the fourth quarter of 2026⁴, and Cornwall Insight's latest forecast, reported on 28 October 2026, predicts a further 16% rise to £1,999 a year on 1 January, up £276 on the October to December level and the biggest rise since January 2023³. The Commons Library, in its own briefing, says the cap is currently forecast to increase by a further 9% in the first quarter of 2027⁴; the two forecasts differ. Forecasts of the price cap are uncertain⁴.

Separately, the Treasury has announced that gas standing charges, a fixed daily fee costing around £108 a year for a typical household, will be scrapped for around 23 million homes, with Chancellor John Healey asking Ofgem to remove them "in 2027 or as soon as possible after"³. The Treasury said fixed costs will move onto the unit rate, which it said could save 60% of households an average of £45 a year, and that targeted mitigation for a small number of households will be set out in due course³.

What happens next

The zero rate on electricity runs until 31 March 2027¹. The next price cap level takes effect on 1 January 2027, with forecasts pointing to a rise⁴. Healey delivers his first Budget on Wednesday 28 October 2026, and is reported to plan to move green levies from energy bills onto general taxation³. The removal of gas standing charges is expected in 2027 or as soon as possible after³.

For help with the costs covered here, see our guides to cutting household bills and tax.