Prime Minister Andy Burnham announced the United Kingdom will abolish the Value-Added Tax on household electricity bills starting Oct. 1, 2026 [1], [2].

The move represents a significant shift in fiscal policy intended to provide immediate financial relief to citizens struggling with high energy costs. By removing this tax, the government seeks to lower monthly overheads for millions of households across the country.

Under the new policy, the VAT rate on household electricity bills will be reduced from five percent to 0% [1]. This measure is the first major action taken by Burnham since assuming the role of Prime Minister. The administration intends for the tax removal to serve as a buffer against the volatility of global energy markets.

Burnham said the decision was driven by the need to support citizens during a period of economic instability. "We need to give people breathing space," Burnham said [1].

The Prime Minister said his administration's primary focus is the economic wellbeing of the public. "We are a cost-of-living government," Burnham said [1].

The policy change comes as the government faces pressure to address the rising cost of basic utilities, a challenge that has persisted throughout the year. The removal of the five percent tax is expected to lower the total cost of electricity for residential consumers starting in October [2].

This announcement occurred as Burnham prepares to appoint his cabinet and set the broader legislative agenda for his term. The government has not yet released the full projected cost of the tax revenue loss associated with the 0% rate [1].

“"We need to give people breathing space."”

The abolition of VAT on electricity marks a transition toward a more interventionist social welfare approach to energy pricing. By eliminating the tax, the UK government is prioritizing immediate household disposable income over tax revenue, signaling that cost-of-living mitigation will be the central pillar of the Burnham administration's early domestic policy.