What a VAT cut on energy bills would mean for your tenants
Stepping into his new role as PM, Andy Burnham has announced his plan for cutting household energy bills. For six months, starting 1st October, there will be no VAT on electricity for those living in Great Britain. The 1st October being when Ofgem’s new price cap comes in, the aim is to cut bills through the winter months, when energy usage is usually higher.
The announcement has not come without its controversy, with the Tories questioning how it will be funded, and the Greens saying a more robust energy cap is needed to properly support people. Regarding the fore question, Burnham plans to scrap Starmer’s Digital ID, though how much funding was already allocated to this is unclear. But will the cut to VAT be enough to save household bills?
How much could this save my tenants?
Firstly, it is key to note that only the VAT on electricity bills will be cut, with gas remaining the same. Based on the usage of the typical household, the government says this new saving will effectively reduce the cap by £45. But the actual saving per household will depend on individual usage. The normal 5% VAT is applied to households after daily standing charges and units used are added together. With the VAT removed, the price saved will vary bill by bill.
Will tenants see their bills go down?
Unfortunately, unless they’re on a fixed rate tariff, their bills will still follow Ofgems price cap, which may rise in October. The driving force behind a further increase in the cap is the ongoing war in the middle east.
Further to this, the new measures only tackle electricity bills, but evidence is showing the rise in cost of gas has far outpaced electricity. The cost of gas has risen a sharp 24% in comparison to the 5% rise electricity has seen, meaning households more reliant on gas for their heating could still face high bills this coming winter.
What can you do to help?
The focus on electricity bills could be a sign of the government’s ongoing commitment to green energy. In 2024 the grants for heat pumps increased to £7,500 in a bid encourage more installations. One key area to focus on in your void developments and renovations could be reducing their reliance on gas. But with the cost of heat pumps still ranging up to £18,000, this may not be a viable solution for all.
Another vital area of household energy costs is the energy efficiency rating of the home. With a few changes to the home, you could increase insulation, bringing down energy usage, especially in the colder months. Boosting energy efficiency can range from full retrofits to things as simple as carpets and new curtains.
Recently, we asked companies at Housing 2026 what they thought the biggest challenges facing the social housing sector were. Unsurprisingly, for many it is energy costs and efficiency. Hear what some companies are doing to reduce costs:
The plan moving forward
The six-month reprieve from VAT covers the remainder of the financial year; whether the government will keep the cut will have to be made in a budget. But Burnham has vowed to provide “breathing space” for households in his first speech as PM. The Government also expects to lower inflation by 0.1%, hoping to further combat the cost-of-living crisis.
What more changes may come, we will have to wait and see, but the focus for the social housing sector may be on the reduction of energy usage as the principal way of combating rising costs.
To learn what you can do to reduce your own costs as a social housing provider, read our past blog on smart void energy management.