Reduced VAT on electricity for winter 2026/27
Andy Burnham removes VAT on electricity for winter 2026/27
One of the very first announcements from the new Prime Minister, Andy Burnham, was to remove VAT on electricity over the coming Winter.
This reduction of VAT from 5% to 0% is set to come into force on 1st October 2026 and end on 31st March 2027. Press reports state this will save an average household around £45 per year or £25 over the period it is in force.
What is the reduction likely to be for heat pump owners? Unsurprisingly a household with a heat pump will benefit more than average. A reduction of potentially £50- £100 over the period is possible. 
The majority of heat pump owners will be utilising off peak tariffs to reduce their running costs. During the winter months the heat pump will be running more – the 5% VAT reduction will be deducted off the rate you pay at all times of the day – whatever the tariff rate is at that time.
This is a step in the right direction but did you know there is still a significantly bigger percentage of tax added to your electricity price? In addition to the 5% VAT there is a 17% charge for environmental levies (or policy costs) part of this funds schemes such as the Warm Homes Discount to support vulnerable people.
Traditionally this additional taxation has been applied to electricity but not to gas. Supporters of the decarbonisation of domestic heating argue that this is unfair. 17% higher prices contribute towards the ‘spark gap’ a statistic that shows in the UK we pay a proportionally higher electricity cost, compared to gas, than any other European country. This is one of the inhibiting factors for the uptake of heat pumps by households currently using mains gas for their heating.
In conclusion it is a hopeful sign that Andy Burnham and his new administration is aware of the problem that high electricity prices are causing the British public and the mixed messaging it is sending out about heat pumps.
For full details of the government announcement, see government news
