The government has announced that the VAT rate for domestic electricity will be reduced from 5% to zero from 1 October 2026 in advance of winter costs.

It is stated that the government  expects that suppliers will pass the VAT reduction on to their customers (including those on fixed tariffs).

The VAT cut, from 5% to 0%, is estimated to reduce  CPI inflation by around 0.10 percentage points and RPI by around 0.14 percentage points.

This action is estimated to cost  around £850 million in 2026-27 on the basis of estimated electricity prices and will be funded by the cancellation of the Digital ID programme.