ENERGY BILLS: VAT scrapped from electricity – but you’ll still pay more

The 5% VAT on household electricity has gone. It came off at midnight, standing charge and prepayment top-ups included, and there is nothing to claim.

Ofgem‘s new price cap kicked in at the same moment, up 4%. A typical home using gas and electricity now pays £1,723 a year, £60 more than over the summer, about £5 a month.

Without the tax cut that rise would have been around £45 bigger. So for most homes the bill has still gone up, just by less than it would have.

The £45 is a Britain-wide figure. The average South Wales electricity bill was £1,129 in 2024, among the highest in Britain, and 5% of that is around £56, so a typical home here keeps a little more than the headline number.

Gas keeps its VAT

Gas is doing the driving, up about 8% under the new cap, and gas keeps its 5% VAT. Homes heated by electricity alone see a rise of under 1% and keep the most from the cut.

Heating oil keeps its 5% VAT too, and sits outside the price cap altogether, so the thousands of oil-heated homes across rural Carmarthenshire and Gower get the cut on their electricity and nothing on the tank. The £9,000 heat pump grant for swapping an oil boiler, raised by £1,500 in July as oil prices climbed, is the government’s offer on that side.

The cut runs to the end of March. The government says it is funded for this financial year and has not said what happens after that.

Around a third of households are on a fixed deal and never see the price cap. The government’s own guidance says the VAT cut applies to fixed tariffs too, and ministers say they “expect” suppliers to pass it on, which would mean a fall for those customers.

“The one they dread the most”

“For many families, the energy bill is the one they dread the most,” said Prime Minister Andy Burnham. “I don’t accept that it has to be this way, and I am determined to bring down costs for good. But I know people can’t wait. Families need breathing space now.”

Energy Secretary Miatta Fahnbulleh said the cut “will give households some much needed breathing space”, on top of “the £150 of costs we removed from bills earlier this year”.

Welsh Secretary Stephen Kinnock said the government was “working to reindustrialise Wales”, naming floating offshore wind, small modular reactors and compound semiconductors, and that “as we approach the winter we are also making sure that people across Wales will have more room to breathe”.

The fixes that stop at the border

The tax cut applies across the UK. Several of the other “everyday fixes” the Prime Minister listed alongside it do not. The £2 bus fare cap from January is for England; transport is devolved, and Wales has £1 fares for under-22s and no cap for most adults.

Business rates are devolved too. Wales’s own cut, 30% for pubs, cafés, restaurants and gyms with a rateable value under £51,000, starts in April 2027.

What does cross the border is the £150 Warm Home Discount, which the government says will reach around six million households this winter, and the £150 taken off bills at last year’s Budget.

Who gets the £150

The discount is not paid out; your electricity supplier takes it off the bill. You qualify if, on 23 August, you or your partner were on Universal Credit, Housing Benefit, income-related ESA or Pension Credit, your supplier is in the scheme, and one of your names is on the electricity bill. The scheme reopens this month.

Last month Age Cymru said more than half the older people it surveyed were already rationing their heating, and asked for the discount to go to £200 with a route to apply for people not on those benefits. It stays at £150, and there is no application route.

Four in ten people struggling with bills never ask for help, with embarrassment the biggest reason. Anyone struggling can contact their supplier, which must offer support.

What comes next

Earlier this week the Prime Minister announced Great British Grid, a new publicly owned body inside Great British Energy, which he says will bring energy costs into line with the rest of Europe within ten years.

Ofgem’s next price cap announcement is on 25 November and covers January to March, the coldest quarter and the last three months of the VAT cut.

Author

Kit Peters

Kit Peters is a journalist and the editor of Swansea Bay News, covering Swansea, Neath Port Talbot and Carmarthenshire since 2020.