Burnham removes VAT from electricity bills – when will prices fall in 2026?
Prime minister Andy Burnham announced plans to scrap VAT on electricity bills, but will the savings be enough to bring bills down this autumn?
Energy bills look set to rise in October despite prime minister Andy Burnham removing 5% VAT on electricity bills during the next price cap period.
The government says the removal of VAT will save households £45 on their annual electricity bill, but the cut will not be enough to offset higher costs in the wholesale markets, according to the latest forecast from energy consultancy Cornwall Insight.
The £45 VAT cut will take effect on 1 October, covering the period until the end of the year. Former prime minister Keir Starmer’s government axed some green levies on energy bills in April which the government says saved £150.
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Burnham’s move will cost around £850 million in 2026/27 and will be fully funded for this financial year by the savings from the cancellation of the Digital ID scheme, according to the government.
He said: “I said I wanted to give people breathing space, and that’s what I’m announcing on my second day as prime minister. We’re taking immediate action to cut taxes on energy bills, put more money in people’s pockets and bring back hope.”
Burnham’s VAT cut will add to the savings households make on energy costs, but with gas prices still remaining high, energy bills are at record highs.
Where are energy prices now?
Average energy bills rose to £1,862 per year on 1 July, up 13.5% from April’s level, when the July to October price cap came into effect.
As the price cap is a cap on unit rates and daily standing charges, you may pay more or less, depending on your energy usage. The price cap also varies by region.
Bills increased following the economic disruption from the Iran war, which sent wholesale oil and gas prices soaring.
As Ofgem calculates the price cap by observing where wholesale prices go in a three-month period and calculating the average, the volatility of the markets made domestic energy bills rise significantly.
Where will energy prices go in autumn?
Energy prices are expected to rise by around 2% in the autumn as wholesale energy prices have surged since the start of the Iran war.
Cornwall Insight, an energy consultancy well-regarded for the accuracy of its price cap forecasts, said on 21 July it expects the October price cap to rise by 2% to £1,906 per year on average.
This is up by around £44 compared to the current price cap of £1,862, despite including the savings from the VAT cut and the axing of green levies earlier this year.
The price cap will apply to you if you are on a standard variable tariff.
Craig Lowrey, principal consultant at Cornwall Insight, said: "The Iran ceasefire gave the markets some breathing room, but this is a pause, not a resolution to the conflict. What comes out of the final agreement, if there is one, will matter enormously for energy prices.
“And even in the best-case scenario, the enduring effects from the conflict will be with us for a while. Infrastructure takes time to repair, supply chains take time to recover, and households will be left dealing with the consequences for some time.”
Lowrey added that the October price hike will hit households harder than the July increase as many turn their heating back on during the autumn.
“The new Prime Minister will face real pressure to act on support for vulnerable households, but the harder question is what comes after that. Currently we are in a perpetual cycle of global shocks, high bills and short-term fixes.”
Energy regulator Ofgem will announce the price cap covering the October to December period by 26 August.
How to get help with paying your energy bills
If you’re struggling to afford your energy bills, you might be able to get a hardship grant through your supplier.
Octopus Energy customers can get help through Octo Assist while the British Gas Energy Trust lets some customers clear their arrears, for example those on prepayment meters owing between £50 and £1,700 and credit account customers owing between £250 and £1,700.
Alternatively, if you’re struggling with energy bill arrears, your energy firm might let you agree to a repayment plan. It will set an amount you must repay once weekly, fortnightly or monthly, covering what you owe plus an amount for your ongoing use.
You might be able to repay your debt directly through your benefits as well, via the Fuel Direct Scheme.
Additionally, some government schemes give select households money to cover the cost of energy bills.
Households in receipt of some means-tested benefits who use participating energy suppliers could get the Warm Home Discount. This is £150 of credit that is automatically applied towards your energy bill during the winter.
Meanwhile, pensioners with an income of £35,000 or less could be eligible for the Winter Fuel Payment, which is worth up to £300 each winter.
To help you keep energy bills low, we have gathered some top tips in our article looking at 14 ways to reduce your energy costs.
