Andy Burnham Targets Living Costs With Home EV VAT and Electricity Tax Changes

On 21 July 2026, UK Prime Minister Andy Burnham announced new measures aimed at reducing the pressure of rising living costs. The package includes removing the 5% VAT on household electricity bills and making home charging for electric vehicles (EVs) less expensive. 

The announcement comes as many households continue to deal with high energy bills, even though inflation has started to ease. How much could these tax changes save, and what do they mean for people thinking about switching to an electric vehicle?

What Andy Burnham’s New Cost-of-Living Plan Includes?

VAT Removed From Household Electricity Bills

On 21 July 2026, Andy Burnham introduced one of his first major cost-of-living policies. The government plans to remove the 5% VAT on domestic electricity bills from 1 October 2026. Officials estimate that the average household will save around £45 a year.

The Treasury expects the measure to cost about £850 million during the current financial year. According to the government, the policy will be funded by cancelling the previous Digital ID programme, which was expected to cost £1.8 billion. Burnham said the aim is to reduce household expenses before winter while keeping government finances under control.

Home EV Charging and Electricity Tax Changes?

The change will also reduce the cost of charging electric vehicles at home. Because home charging uses standard household electricity tariffs, removing VAT lowers charging costs without introducing a separate subsidy for EV owners.

The savings for each charge are relatively small, but they reduce running costs over time. The policy could also encourage more households to consider switching from petrol or diesel vehicles by making long-term ownership costs slightly lower.

How Much Could UK Households Actually Save?

How Much Will Families and EV Owners Save?

The amount each household saves depends on how much electricity it uses. Government estimates include:

• Average household: about £45 a year
• Homes using electric heating: potentially higher savings
• Home EV owners: lower charging costs because electricity becomes cheaper

Households with higher electricity consumption are likely to save more. EV owners will also pay slightly less every time they charge at home after the VAT cut takes effect. The savings may not dramatically reduce annual energy costs, but they provide consistent financial relief and lower the cost of owning an electric vehicle.

Will Bills Still Rise Despite the Tax Cut?

They could. Electricity bills still depend on wholesale gas prices and future decisions on the Ofgem energy price cap.

Some analysts believe higher wholesale energy costs during winter could reduce much of the benefit from the VAT cut. As a result, many households may still see energy bills rise even after the tax change. While the measure offers some relief, it does not address the wider factors that continue to influence electricity prices across the UK.

Economic Impact and Political Debate around the Proposal

Why Does the Government Support the Plan?

Burnham says the policy provides immediate help for households facing higher living costs. Rather than introducing a large spending package, the government has chosen targeted tax relief that reduces everyday bills more quickly.

Burnham focuses on the cost of living crisis, saying he wants to give people “breathing space” and will set out plans starting tomorrow, including how to pay for them.

Also says his first instruction will be to end rough sleeping pic.twitter.com/olgDCGNAOj

— alessandra rizzo (@alessandrarizzo) July 20, 2026

Ministers also argue that cancelling the Digital ID programme helps pay for the measure without increasing pressure on public finances. The proposal reflects Burnham’s commitment to supporting households while continuing to follow existing fiscal rules.

Why are Critics Questioning the Proposal?

Some economists believe the policy will benefit households with higher electricity usage more than lower-income families, whose savings may be relatively limited.

Others question whether ending the Digital ID programme will fully cover the long-term cost of removing VAT from electricity bills. Some market analysts argue that wider reforms, such as reducing standing charges or changing the way electricity prices are set, would have a bigger impact than a temporary VAT reduction. Public reaction has generally been positive, although many people believe further reforms are still needed.

What Comes Next for UK Energy Bills and EV Owners?

What Future Energy Reforms Should Households Watch?

The VAT cut is due to begin on 1 October 2026, but the government has suggested that more changes could follow. Further reforms to electricity pricing and household energy costs may be considered in the next Budget.

If additional measures are introduced, they could reduce the cost of charging electric vehicles at home even further and improve the affordability of electricity for households across the UK.

Conclusion

Removing VAT from household electricity bills gives families some relief as energy costs remain high. It also reduces the cost of charging electric vehicles at home, although the savings are modest. Whether households see a bigger difference will depend on future energy prices and any additional reforms the government introduces to the UK’s electricity market.

Disclaimer:

The content shared by Meyka AI PTY LTD is for research and informational purposes only. Meyka is not a financial advisory service, and the information provided should not be treated as investment or trading advice.