Burnham to remove VAT from household electricity bills

Households struggling with the cost of living will get relief this winter as VAT on household electricity bills is to be removed.

From 1 October, the rate of VAT applied to household electricity will be cut from 5% to 0% for six months.

How much will this save me?

The government believes cutting VAT on electricity bills will take about £45 off the yearly Ofgem price cap in October. 

And it comes after £150 was removed from bills at the last Budget.  

“Westminster has not been working for people for too long, with families struggling with the cost of living,” said prime minister Andy Burnham.

“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.”

How is the government going to pay for it?

The VAT cut is estimated to cost £850m this financial year.

But the government has confirmed that the policy will be funded by scrapping the proposed digital ID programme, which was set to cost £1.8bn over the next three years.

Are more cost-of-living announcements on the way?

It’s only Andy Burnham’s second day in Downing Street and, hopefully, this announcement is a real statement of intent from the new prime minister to drive down the cost of living.

The government has already hinted that more support, including longer-term measures, are set to be announced at this year’s Budget.

And speaking to reporters yesterday, Burnham confirmed that options such as rent freezes are being considered.

“We just want to do some things that people will feel and feel quite quickly," the prime minister said.

“It won’t solve everything.

"It won’t take all of the pressure off, but it just shows a direction of travel and that we’re serious about helping them out.”

As ever, we'll be keeping a close eye on what's announced in the coming months and here to let you know what it means for you.

Why we want a social tariff

A £45 saving on your energy bill isn't insignificant if you're really struggling to make ends meet.

But as ever, there’s always more that can be done to help those households in the greatest need.

Money Wellness are calling for a national social tariff that would automatically reduce bills for eligible households.

When people are under financial pressure, some will turn to credit to cover essential costs.

And that can seriously compound their financial problems.

Yet many of the support mechanisms that are in place are complex, inconsistent and hard to access.

We believe a targeted, automatic and consistent social tariff would be much fairer, and also stop people falling into debt in the first place.

More than four in ten (42%) of the people we support come to us with gas and electricity arrears.

And based on our analysis, around 87% of these households could potentially meet common eligibility criteria for a social tariff, such as receiving means-tested benefits, disability benefits or experiencing financial hardship.

What can I do if I’m worried about energy bills?

If you’re struggling to keep up with your gas and electricity bills, speak to your supplier without delay.

They might be able to offer payment plans, grants and advice on managing your account.

Find out what benefits you can claim 

You may be entitled to some financial support to help with the cost of living.

Use our benefits calculator or give us a call to find out what you could be eligible for.

It might be more than you think.

Ask for help with your debts

If you’re feeling weighed down by debt, get in touch for confidential, practical and impartial debt advice.

Try to save energy at home

Small changes like taking not leaving the TV on standby mode and turning lights off in empty rooms could knock a few pounds and pennies off your energy bill.

Check our list of 50 smart energy-saving tips for more easy ideas. 

Create a household budget

Make sure you know exactly how much money you’ve got coming in each month and where it’s going.

You can then prioritise your spending and spot where you can save money.

Check our guide to creating a budget to find out more.