Electricity bills to fall from October as VAT is scrapped – how much could you save?

Millions of households across the UK are set to see their electricity bills fall from October after new prime minister Andy Burnham announced he will remove VAT from domestic electricity bills.

The move is expected to reduce the annual Ofgem price cap by around £45, with suppliers expected to pass the savings on automatically.

The change will take effect from 1 October, just in time for the next energy price cap.

How much will electricity bills fall?

Most households currently pay VAT on their energy bill at a rate of 5% - but under the changes this will fall to 0%.

The government says the average saving will be £45.

But the exact amount you could save will depend on your usage and much your bill is.

Those with the highest bills, will see the biggest savings.

The cut will apply automatically and no one will need to apply.

Will gas bills come down too?

The measure only applies to electricity, so your gas bill will remain the same.

Not everyone uses gas, however, the vast majority of households use electricity.

If you do have the same provider for both gas and electricity, you can see the split between what you pay for each.

Gas is often used to power heating systems so bills can spike over the colder months.

Will people on fixed tariffs save money?

The cut will apply to people on fixed tariffs, with suppliers automatically reducing bills from 1 October.

You won't need to do anything to get the saving.

If you are already in energy debt, the change won't apply retrospectively. You need to talk to your energy provider to work out a way to repay.

If you’ve fallen behind on energy bills, its worth looking at whether you could get help worth thousands of pounds with free grants.

The grants are offered by charities funded by major energy companies.

You’ll have to meet different criteria to qualify for the scheme.  

For example, British Gas’ Individual and Families Fund is open to prepayment meter and credit customers who are up to £1,700 in debt. You don’t even need to be a customer of the energy giant to apply.

You’ll need to have a household income of less than £20,328 a year, or someone in the household has more than three children, is registered disabled and receives a disability benefits or carers Allowance.

The account needs to be active and registered to your current home address.