Ofgem is due to confirm the October-to-December energy price cap by 26 August, and most of the coverage that follows will focus on whether the headline number goes up or down. The more interesting figure for anyone who owns or lets property already exists. From 1 October, VAT on domestic electricity drops from 5% to 0%, one of new Prime Minister Andy Burnham's first policy moves after taking office. On paper it sounds like straightforward good news for every household bill. In practice, the saving is smaller than the headline suggests, it's temporary by design, and it's worth rather more to some homeowners and landlords than to others — which is exactly the part worth working through before you decide it doesn't affect you.
The Policy: 5% to 0% VAT on Electricity From 1 October
The change itself is simple to describe. Electricity bills currently carry 5% VAT, the reduced rate that's applied to domestic energy since the 1990s, and from 1 October that drops to zero. Suppliers apply the cut automatically, so nobody needs to ring their provider or fill in a form. The government has said it expects the reduction to reach every customer, including those locked into fixed tariffs agreed months ago, and there's no opt-in mechanism to worry about missing. Gas is untouched — this is an electricity-only measure. That matters more than it sounds for anyone heating with gas central heating while cooking and running appliances on electricity, because only part of their annual spend actually benefits from the cut. Treasury figures put the cost of the measure at roughly £850 million for the 2026-27 financial year, funded by scrapping the Digital ID programme rather than new borrowing. Officials estimate it will shave around 0.10 percentage points off CPI inflation and 0.14 points off RPI, which is small in isolation but not irrelevant given the Bank of England is weighing whether to cut the base rate again in September.
Why the £45-a-Year Saving Might Not Feel Like £45
The government's own estimate is that the VAT cut takes about £45 a year off the average Ofgem price cap, on top of the £150 already removed at the last Budget. Set against a typical dual-fuel bill, £45 works out at roughly £3.75 a month, or under a pound a week. That's real money over a year, but it's not the kind that changes a household budget on its own. There's a catch that's easy to miss in the announcement, too: Ofgem's price cap is separately forecast to rise by around 3.1% from the same date. That rise is driven by wholesale costs unrelated to the tax change, and it will cancel out a meaningful chunk of what the VAT cut hands back. The Institute for Fiscal Studies puts the realistic saving closer to £25 once you account for two things — the measure only runs for six months, from October to the end of March 2027, and electricity use is naturally higher over winter than the flat annual estimate implies.
So this isn't the £45 windfall the headline number suggests.
The Landlord Angle: Who Actually Pockets the Saving
Whether this touches your bottom line depends entirely on who's named on the electricity account, and that's the detail most coverage of the policy has skipped. A landlord letting a standard assured shorthold tenancy where the tenant pays the supplier directly sees none of this — the saving lands with the tenant, full stop. It's a different picture for HMO landlords and anyone letting furnished properties with bills included in the rent, because they're the account holder paying the supplier, so the VAT cut reduces their own running costs rather than the tenant's. If you fall into that second group, check your October statement against September's rather than assuming the saving has automatically applied. Suppliers have been asked to pass it on, but "asked to" and "confirmed to have done so on every account" aren't the same thing. It's worth the five minutes to verify, particularly if you run more than one HMO and the accounts are on different suppliers or tariff types.
Bigger, Older, Leakier Homes Save More in Cash Terms
Because the cut is a percentage of the bill rather than a flat amount, the cash saving scales with how much electricity a property actually uses. A well-insulated flat with a modern heat pump and a low annual kilowatt-hour figure saves less in pounds than a draughty Victorian terrace with older storage heaters and single glazing, even though both get the same five-percentage-point cut. That's a genuinely odd outcome for a government that's simultaneously pushing landlords toward EPC C by 2030 — the properties furthest from that target, the ones costing tenants and owners the most to run, are also the ones that benefit most in raw pounds from this particular tax change. It won't move anyone's retrofit decision on its own. But it's worth knowing if you're weighing whether to bring insulation work forward, because the VAT cut narrows — slightly — the annual running-cost gap between an efficient property and an inefficient one, at least for the six months it's in force.
What the Six-Month Window Means in Practice
Nothing about the announcement suggests this survives past March 2027 without a further decision from the Treasury. The cut is explicitly framed as running to the end of the current financial year, and unlike the earlier £150 reduction at the last Budget, there's no indication yet of what replaces it or whether VAT simply reverts to 5% overnight. That has a few practical consequences worth naming rather than glossing over:
- Anyone budgeting on the basis of permanently lower electricity costs is planning around a number with an expiry date attached, even if that date hasn't been advertised as loudly as the saving itself.
- Landlords who adjust bills-included rent downward to reflect the saving should build the March 2027 reversal into the tenancy agreement now, not renegotiate it under pressure later.
- Anyone remortgaging or budgeting a house purchase around household running costs should treat the current, VAT-free electricity price as the low point of the range, not the baseline.
- First-time buyers comparing running costs between two properties this autumn are seeing a temporarily narrowed gap between efficient and inefficient homes, not the gap they'll actually live with from April 2027 onward.
What This Means for Your Autumn Budget
You don't need to do anything beyond checking your October bill lands lower than expected once the forecast price cap rise is factored in — the supplier does the work. Landlords with bills-included tenancies should reconcile their account this autumn rather than waiting until spring, because a six-month window is short enough that a missed VAT credit is genuinely worth chasing with the supplier while records are still fresh. And anyone selling or letting a property with poor energy efficiency shouldn't read any of this as reassurance that running costs are fine. The VAT cut takes the edge off a high bill, it doesn't erase it, and it certainly doesn't make a leaky, expensive-to-heat house any more attractive to a buyer who's comparing it against a well-insulated neighbour with a fraction of the annual spend. Treat the saving for what it is: useful for six months, gone by April, and not a substitute for fixing the thing that made the bill high in the first place.