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UK to Scrap VAT on Household Power Bills to Counter Rising Living Costs

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The UK's new prime minister, Andy Burnham, will remove VAT or sales tax charges from household electricity bills starting from Oct. 1, according to a government press release on Tuesday.

The scheme will be paid for using funds that had been allocated to the introduction of digital identification for citizens, a 1.8 billion pound ($2.4 billion) scheme that he has chosen to abandon.

The scrapping of VAT on household bills will cost an estimated 850 million pounds for 2026-27 and is expected to slow inflation by about 0.1 percentage points.

Funding for further action beyond this period would be decided during the setting of the next budget, the statement said and any such decision would have to be consistent with the government's fiscal rules.

The removal of VAT, currently 5% on power bills, would reduce regulated maximum power bills by about 45 pounds per year and would add to other measures in the last budget which lowered annual bills by about 150 pounds.

"By targeting electricity bills, more people will be supported with rising bills and the government is helping to keep inflation down," the statement said.

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