Andy Burnham cuts VAT on electricity bills — what it means for homeowners

The price of electricity in Greater Manchester is about to fall, by the full 5% rate of VAT. Andy Burnham, the region’s mayor, confirmed on Tuesday that he will use devolved powers to scrap VAT on domestic electricity bills from October 2026. The move, reported by The Guardian, makes Greater Manchester the first UK region to use its fiscal devolution to directly cut household energy costs.

How much will households save?

According to The National Scot, the typical household in Greater Manchester using 2,900 kWh of electricity per year will save around £63 annually. That’s roughly the cost of a single top-up for a standard electric vehicle or two months of running a heat pump in winter. The saving is modest, about 2% of the average dual-fuel bill, but it is a rare piece of good news for households that have seen energy costs rise by over 50% since 2021. The policy applies to all households, regardless of income, tariff, or whether they are on a standard variable or fixed deal.

Who qualifies, and who doesn’t

The VAT cut applies only to electricity bills in the Greater Manchester Combined Authority area, which covers 10 boroughs including Manchester, Salford, Bolton, and Stockport. Households outside this region, including those in neighbouring Lancashire or Cheshire, are not eligible. The policy does not affect gas bills, which remain at the standard 5% VAT rate, nor does it reduce standing charges, which for many households now account for a larger share of the bill than the unit rate itself. For homeowners with solar panels or battery storage, the saving applies only to electricity imported from the grid; self-generated power is already VAT-free.

What this means for eco upgrades

For homeowners considering a heat pump or electric vehicle charger, the VAT cut is a small but real incentive. The Boiler Upgrade Scheme still offers £7,500 off a heat pump installation, and the ECO4 scheme remains open for low-income households. The VAT cut does not replace these, it adds to them. But the catch is that the saving is tiny compared to the upfront cost of insulation or a new heating system. A typical 3-bed semi needing cavity wall insulation and loft top-up would pay around £2,000; the VAT cut saves £63 a year. At that rate, it takes over 30 years to recoup the insulation cost, if energy prices don’t rise again. The real value of the policy may be symbolic: it signals that regional mayors can act on energy affordability without waiting for Westminster.

Could other regions follow?

The devolution deal that gave Greater Manchester the power to vary VAT on domestic energy is unique. Other metro mayors, including those in West Yorkshire, the West Midlands, and Tees Valley, have not yet secured similar powers. The Treasury has not indicated it will extend the policy nationally. Documents seen by The Guardian suggest the government is watching the pilot closely, but has made no commitment. For now, the VAT cut is a Greater Manchester-only experiment. Homeowners elsewhere should not expect a similar saving unless they move or the policy is rolled out nationally, which would require primary legislation and cost the Treasury an estimated £2.5 billion a year.

Next steps for homeowners

If you live in Greater Manchester, you do not need to apply, the VAT cut will be applied automatically by your supplier from October 2026. If you are outside the region, the best way to cut your electricity bill remains reducing consumption: insulate your home, switch to a heat pump, or install solar panels. Check if you qualify for ECO4 or the Boiler Upgrade Scheme. For those on standard variable tariffs, consider fixing your energy tariff now, rates are expected to rise again in January 2027. The VAT cut is welcome, but it is no substitute for a properly insulated home.