UK Removes 5% VAT on Domestic Electricity Bills From October 1

UK Prime Minister Andy Burnham announced on July 21 that the new Labour government will remove the 5% value-added tax on domestic electricity bills. The measure takes effect October 1 and is timed to affect the next Ofgem price cap. The VAT removal is expected to lower the annual Ofgem price cap by around £45 for a typical household.

All energy suppliers are expected to pass the reduction to customers, including those on fixed tariffs. The government said the cost will be funded by canceling the £1.8 billion Digital ID program. Small businesses not registered for VAT that qualify for domestic energy relief, along with eligible charities and residential care homes, will also benefit.

UK energy prices rose 13% from July 1 after Ofgem increased the quarterly price cap amid higher wholesale gas prices. The price cap limits what suppliers can charge domestic consumers per kilowatt hour. " The new government took office on July 20.