Overview
- The new government announced the 5% VAT on domestic electricity will be removed and applied automatically to bills from 1 October, a change the government says will take about £45 off the annual Ofgem price cap.
- Ministers say the 2026–27 cost is roughly £850 million and that funding will come from cancelling the planned £1.8 billion Digital ID programme.
- Energy suppliers are expected to pass the full VAT reduction to customers, including people on fixed-price tariffs, so households do not need to apply to receive the saving.
- Northern Ireland cannot mirror the VAT change because it follows separate EU-derived VAT rules for goods, so Westminster will provide comparable funding to the Northern Ireland Executive for equivalent support.
- The measure will be scored by fiscal watchdogs and considered for extension at the Autumn Budget, and ministers say it should slightly lower inflation while critics demand clearer, formal accounting of long-term costs.