The new Prime Minister has made energy bills his first domestic priority. Within days of taking office, he announced a cut to electricity VAT from 5% to 0%, a move that will save the average household roughly £63 a year. That is about the cost of a weekly shop at Aldi. It is not nothing. But it is not enough.
As reported by Energy Digital Magazine, the VAT cut is part of a broader push to bring energy costs to the top of the political agenda. But for homeowners already grappling with a price cap that remains above pre-crisis levels, the question is whether this is a genuine solution or a headline-grabbing gesture.
What the VAT cut means for your bill
Ofgem’s price cap for a typical dual-fuel household paying by direct debit stands at £1,928 a year from October. Removing the 5% VAT on electricity, which accounts for roughly half the average bill, saves around £63. That is a 3% reduction. Welcome, but not transformative. The catch is that the price cap itself is still 40% higher than in 2021. The underlying drivers, wholesale gas prices, network costs, policy levies, remain untouched.
For a household in a draughty 3-bed semi with an EPC rating of D, the VAT cut might cover the cost of a single radiator upgrade. It will not touch the £2,000 annual heating bill that leaks through single-glazed windows and uninsulated loft spaces.
Why fabric comes first
The Energy Saving Trust has long argued that the most cost-effective way to reduce bills is to stop wasting heat. A typical semi-detached home loses 25% of its heat through the roof, 35% through walls, and 15% through windows. The VAT cut does nothing for any of these. A homeowner could spend the £63 saved on a year’s worth of draught-proofing strips, but that is a sticking-plaster solution.
For lasting impact, the government should pair the VAT reduction with expanded grants for cavity wall insulation (£500–£1,500 typically) and loft insulation (£200–£600). The Great British Insulation Scheme, launched in 2023, has been slow to roll out. According to government data, only 15,000 homes were upgraded in its first year, against a target of 300,000.
Heat pumps and the VAT anomaly
One irony of the VAT cut is that it does not apply to heat pumps, which currently incur 20% VAT on installation. The government has promised to reduce that to 0% from 2027, but the delay is counterproductive. Heat pumps are three times more efficient than gas boilers, yet upfront costs remain a barrier. A typical air-source heat pump installation costs £7,000–£13,000, even after the £7,500 Boiler Upgrade Scheme grant.
If the PM were serious about long-term affordability, he would scrap VAT on heat pump installations immediately. That would save a household £1,400–£2,600 on installation, far more than the £63 annual electricity saving.
What homeowners should do now
The VAT cut is a short-term political fix. For real savings, households should focus on what they can control: check loft insulation depth (270mm is the target), seal draughts around windows and doors, and consider a smart thermostat to optimise heating schedules. Those with an EPC of D or below should apply for the Great British Insulation Scheme via gov.uk before the next winter.
The PM’s move is a start. But until government policy addresses the fabric of Britain’s leaky housing stock, and makes heat pumps affordable now, not in four years, energy bills will remain a political football rather than a solved problem.
Frequently Asked Questions
A typical household paying the average electricity bill of around £1,928 per year will save about £63 annually. That is a 3% reduction, though your actual saving depends on your consumption. The cut applies only to electricity, not gas.
No. EPC ratings are based on the building's fabric, insulation, glazing, heating system efficiency, not on the cost of energy. To improve your rating, you need fabric upgrades such as cavity wall insulation, loft insulation, double glazing, or a heat pump. The VAT cut does not affect these.
