Households across the UK are seeing changes to their energy bills as new tax rules come into force in October. The removal of VAT on domestic electricity is designed to reduce costs for consumers, while other changes to energy prices could offset part of the saving.
Electricity VAT Removal Takes Effect In October
From 1 October, households will no longer pay the existing 5% VAT charge on electricity bills, a measure expected to reduce the average annual bill by around £45. The VAT cut was announced as part of government measures aimed at reducing pressure on household finances.
Under the previous system, energy suppliers applied VAT to electricity usage and unit prices. Following the change, providers are expected to pass the full saving on to customers. The policy comes into effect on the same day as a new Ofgem energy price cap begins.
Energy Price Cap Rises At The Same Time
While the VAT change reduces costs, households will also face a higher energy price cap from October. The Ofgem price cap will rise to around £1,723 per year for an average household between October and December 2026. This represents an increase of approximately £60 a year compared with the previous level.
The figure represents the estimated annual cost for a typical household, rather than a fixed amount every customer will pay. The final bill depends on energy consumption. Ofgem is expected to announce the next price cap, covering January to March 2027, in November.
Future Energy Bills Remain Uncertain
Forecasts suggest household energy costs could rise further in early 2027. Some energy companies have predicted higher bills, with EDF forecasting a possible increase to around £2,098 for an average household, depending on future market conditions.
Energy prices have been affected by international events, including tensions involving the US and Iran, which have contributed to movements in global energy markets. The situation has increased attention on possible government measures to reduce pressure on households.
Government Considers Further Energy Support
The government is reportedly considering extending VAT relief to gas bills as well as electricity. Such a measure could provide an additional reduction for households, with estimates suggesting a possible saving of around £40 per year on average.
Any decision would likely be announced during the upcoming Budget at the end of October. For households, the October changes bring a reduction on electricity taxation while energy market conditions continue to shape the overall cost of heating and powering homes.
