Households face higher typical energy bills from 1 October even as VAT on domestic electricity in Great Britain drops to zero for six months.
Ofgem says the default-tariff price cap for a typical dual-fuel Direct Debit customer rises 4 per cent to £1,723 a year between 1 October and 31 December, up from £1,663 in the July to September quarter. That is about £60 more on the annualised illustration, or roughly £5 a month, before individual use, region and meter type are counted.
The same Ofgem notice confirms electricity unit rates and standing charges in the cap exclude VAT from 1 October 2026 to 31 March 2027, while gas stays at 5 per cent VAT. In plain terms, Andy Burnham’s day-two electricity tax cut is now built into the winter cap numbers, and the overall dual-fuel illustration still goes up.
Ofgem’s August letter on the cap said wholesale costs were the main driver, with the wholesale allowance up 11 per cent and making up 47 per cent of the dual-fuel Direct Debit illustration. It pointed to Middle East instability, LNG risk and tighter power margins in Europe. Electricity wholesale rose 10 per cent and gas wholesale 13 per cent on the previous quarter in Ofgem’s breakdown.
The VAT change itself is temporary and incomplete. HMRC’s tax information note sets a zero rate for qualifying domestic electricity in England, Scotland and Wales from 1 October 2026 to 31 March 2027 only. Gas and other domestic fuels stay at 5 per cent. Northern Ireland’s electricity VAT rate is unchanged under the note; ministers said the Northern Ireland Executive would get comparable funding instead.
When Burnham announced the cut on 21 July, Downing Street said it would take around £45 off the yearly Ofgem electricity illustration and cost about £850 million in 2026-27, funded from cancelling the £1.8 billion Digital ID programme. Further long-term funding was pushed to the Budget and an OBR forecast. HMRC’s September note leaves the Exchequer-impact table empty and says the final costing awaits OBR scrutiny at a future fiscal event.
So the politics and the bill collide. Ministers sold an immediate electricity tax cut as breathing space. The regulator’s October cap, published with that cut already baked in, still shows a higher typical dual-fuel bill because gas and wholesale power moved the other way. Ofgem itself warns households may not see the full electricity VAT saving in the total bill while gas wholesale prices stay high.
Prepayment customers are not spared. Their typical dual-fuel illustration rises from £1,620 to £1,678. Standard credit moves from £1,796 to £1,861. Only Economy 7 shows a smaller 1 per cent rise in Ofgem’s summary table.
None of this is delivery of permanently cheaper British energy. It is a six-month electricity VAT holiday in Great Britain, paid for by cancelling another programme, while the cap that families actually feel still climbs with wholesale gas. Net Zero bills, network costs and policy charges remain inside the cap machinery; Ofgem’s annex still lists policy at about 6 per cent of the Direct Debit dual-fuel stack.
Suppliers are expected to apply the electricity VAT change automatically, including on fixed tariffs, as they did when earlier policy costs were taken off bills. Households should not need to apply. The catch is elsewhere: the zero rate expires on 31 March 2027 unless ministers extend it, systems must be switched back to 5 per cent, and gas never left the reduced rate. A dual-fuel home still pays VAT on the fuel that heats most British houses.
Britain needs lower bills from secure supply, not a temporary line on the VAT receipt. From 1 October, readers can check their statement for a zero VAT line on electricity and a higher overall dual-fuel path if they are on the default tariff. The open questions are whether the cut is extended beyond 31 March 2027 at the Budget, what it finally costs once the OBR certifies the figure, and how much of the “breathing space” survives the next wholesale spike.
