VAT on household electricity in Great Britain goes to zero on 1 October, paid for this year by cancelling the Digital ID programme

Household electricity in Great Britain loses its VAT on 1 October.

The rate goes from 5 percent to zero. The government announced it on 21 July, timed so that it lands inside the next Ofgem price cap rather than arriving as a separate rebate, and the release puts the effect at around £45 off the yearly cap. That sits on top of £150 taken off bills at the last Budget. Suppliers are expected to pass the reduction through to every customer, including those on fixed tariffs, as the release says they did with the £150.

Three numbers carry the policy. The measure is costed at around £850 million in 2026-27, on the basis of estimated electricity prices, with updated costs promised at the Budget. It is funded by cancelling the Digital ID programme, which the release says was going to cost £1.8 billion over the next three years. And the government estimates the cut will reduce CPI inflation by around 0.10 percentage points and RPI by around 0.14 percentage points.

Note what the document does not say. It gives no end date. What it says is that the action "applies and is funded for this financial year" and that any further action, including funding for longer-term measures, will be taken at the Budget alongside an OBR forecast. A six-month framing running to 31 March 2027 has circulated, and it is not in this release. A separate zero rate does run to 31 March 2027, for the installation of energy-saving materials, which is a different measure on a different thing.

Northern Ireland is the exception, and the reason is structural rather than political. Under the terms of the UK's exit from the EU, EU VAT rates apply in Northern Ireland on goods, and that includes electricity, so implementing the cut there would need agreement from the EU. Instead the NI Executive receives comparable funding to support households directly.

The relief reaches past households. Small businesses that qualify for the domestic energy VAT relief and are not registered for VAT are in scope, as are charities and residential care homes eligible for the reduced rate.

Chancellor John Healey, appointed on 20 July, is quoted in the release saying the cut will give families breathing room on bills and help bring down inflation. Prime Minister Andy Burnham announced it on his second day in office. This item is late: the announcement is five days old and this desk had not carried it. It runs now because the measure has not taken effect yet, the price cap it is sized against is still ahead, and the underlying document is public and linked above.