The Chancellor, John Healey, announced in the Budget on 28 October 2026 that the removal of VAT from domestic electricity bills will be extended to July1. The cut had previously been due to end on 31 March 20273. The extension was announced alongside a £100 energy payment for households in England in council tax bands A to D, which the Chancellor said would cost £2.6bn2.
The value of the VAT cut is given differently across reports. The government previously removed the 5 per cent VAT from electricity bills until 31 March, which was described as cutting around £45 a year3. Uswitch, which dates the cut from 1 October, gives the same £45 annual average saving5. The i Paper reports the extension as "taking £50 off the annual price cap"3. Households continue to pay 5 per cent VAT on gas3.
On the £100 payment, the i Paper reports it will reach around 20 million households, roughly 70 per cent of all residential properties, containing 45 to 50 million individuals3. The Guardian describes it as reaching houses worth up to about £600,000 in London4. The Mirror reports that in four local authority areas (Hull, Stoke-on-Trent, Sandwell and Barking and Dagenham) more than 97 per cent of households will receive the payment, while in a handful of wealthier areas fewer than half will be eligible2. The money is to be paid in January and applies to homes in England only, though Healey said funding would be available for the devolved governments to apply similar relief2. The Guardian reports equivalent funding for Scotland and Wales, whose governments can decide whether to replicate the measure4. Energy Action Scotland puts the Scottish figure at between £200 million and £300 million of public spending1.
"I'm extending that VAT cut through the winter and spring to July, taking £50 off the annual price cap"
The Budget also confirmed plans to shift gas standing charges to unit rates, with similar reforms to follow for electricity2. The i Paper reports that standing charges on gas bills will be scrapped from 20273. Energy Action Scotland says the government believes lower-consuming households are likely to save around £45 per year, while higher-consuming households will pay more1. The i Paper reports the Chancellor will scrap the upcoming gas shippers' obligation, a green levy funding hydrogen projects, and back those projects directly from government3. It puts levies at up to 18 per cent of electricity bills and 7 per cent of gas bills3.
The context is a rising cap. Ofgem's price cap rose by 3.6 per cent to £1,723 for a typical household on 1 October2; the i Paper gives the rise as £60 a year3. Uswitch records the cap at £1,477 from April to June, £1,663 from July to September (a 13 per cent rise) and £1,723 from October (a further 4 per cent), and reports supplier predictions averaging £2,074 from January 2027, a 20 per cent increase5. The Mirror reports a further rise of around 22 per cent forecast in January2.
Why it matters for households
The VAT extension keeps the tax treatment of energy bills unchanged for longer, so electricity unit costs stay below what they would otherwise be until July. Because VAT is charged as a percentage, the cash saving moves with consumption and with the cap level, which is why the figures reported range from about £45 to £50 a year. Gas remains subject to 5 per cent VAT3.
The standing charge change alters the split between fixed daily costs and unit rates, shifting more of the recovered cost onto usage. For a household using little gas, the fixed daily charge falls away; for one using a lot, the unit rate rise can outweigh it. Energy Action Scotland notes that electricity standing charges often exceed 65 pence per day and are regionally uneven, and that Scotland has a high share of homes on electric heating, particularly in rural and island areas and in homes using storage heating1. Uswitch puts the average electricity standing charge under the current cap at 54.83p per day and gas at 29.68p per day5.
The £100 payment is a cash transfer rather than a change to the price of energy, so it does not alter a home's underlying exposure to wholesale prices or to the price cap. Energy Action Scotland argues that Council Tax banding is a blunt measure of hardship, noting that Scottish valuations rest on assessments from the early 1990s and that more than 70 per cent of households could qualify while fuel poverty affects around one in three1. The End Fuel Poverty Coalition said the payment will "barely dent" the predicted January rise, and Citizens Advice called for support targeted at those with the greatest energy needs2.
What happens next
The VAT cut now runs to July1; what happens after that has not been reported. The £100 payments are due in January2. Gas standing charges are to be scrapped from 2027, with electricity reforms to follow2. The next price cap takes effect on 1 January 20275.
Sources5 sources
- A £100 Payment for Most, or Meaningful Help for Those Who Need It Most? - EAS, eas.org.uk
- budget 2026 map winter energy payment - The Mirror, mirror.co.uk
- How much £100 energy payment for council tax bands A-D will help vs rising bills, inews.co.uk
- Healey gives households £100 to help navigate ‘global economic storms’ | Budget 2026 | The Guardian, theguardian.com
- 2026 gas and electricity forecast - Uswitch, uswitch.com