Electricity VAT to be scrapped for six months from 1 October – watch Martin Lewis explain whether it will actually save you money

Martin: "The new Andy Burnham administration has just announced that from 1 October, for six months, it's going to get rid of VAT on domestic electricity bills.

"Now, this is good news. It means a saving, everything else remaining equal. But everything else isn't going to remain equal, so I want to give you my back-of-the-cab explanation for what this actually means for the pound in your pocket. I'm on my way to a TV show.

"A cut in domestic electricity is a cut of 4.8% off all electricity bills. Whether you're on the Price Cap, whether you're on a fix, everybody's bills should be reduced.

"But the Price Cap, which is what 60% of people in England, Scotland and Wales are on – if you're on your company's standard tariff, you're on a Price Cap tariff – that moves every three months and of course, it's going to move on 1 October.

"Now the prediction for the 1 October Price Cap is pretty tight right now, as we're most of the way through the assessment period. And it is likely to rise. The current prediction is 3.1%.

"So while you've got 4.8% coming off electricity bills, you've got 3.1% going onto gas AND electricity bills. That 3.1% is equivalent, over a year, to around £50. So let's do it for six months and say it's £25.

"So you've got £45 coming off bills, but £25 going onto bills. So on 1 October, it's looking like the actual saving over six months would be £20.

"But the Price Cap moves again in January, and currently the prediction is in January it'll be going up again by about 2%, although that's much more crystal ball gazing. If that were to happen, it would negate all the benefit of the VAT cut.

"Now, we need to be straight. You are still saving compared to what you would have been in if this cut hadn't been made. But no one is really going to feel very much change in their pocket from this. It isn't a huge amount.

"So while I think it's a good totem, in practical terms it isn't enough to make you feel a change in energy bills.

"Just to put it into perspective, two weeks ago the cheapest fixed deal was 14% less than the Energy Price Cap. Now the cheapest fix is 8% less. That change is just because of what's going on in the Middle East, and it's a bigger factor than the VAT cut. So this is a small movement in something that varies a lot.

"What I am pleased to see, though, is the focus on electricity costs. Government policy is all about moving us towards electricity, so it's been perverse in recent years that relatively the price of gas has gotten lower while electricity has gone up. So at least there's some logical sense in there.

"We also have to say that this is certainly a better start than when Starmer came in and their first consumer move was cutting the Winter Fuel Payment and moving it to a broken, means-tested system.

"This is a good totem, but for me it's only a totem. I hope that makes sense."