Martin Lewis: Electricity VAT cut is welcome, but people “won’t feel much benefit"

Responding to today’s Government announcement that VAT will be removed from electricity bills for six months from 1 October, Martin Lewis, founder of MoneySavingExpert.com, said: "News. Govt is to cut VAT on electricity bills for 6mths from 1 October. This will reduce bills by 4.8%. It says it is a £45 cut on a typical bill. It should come off all bills (inc fixes).

"This is a good totemic step and very welcomed. Yet in practice people won't feel much benefit.

"The energy Price Cap on 1 October for elec & gas is currently predicted to rise 3.1% which on typical bills is over £50 on an annualised basis (and that's likely to be in the right ballpark as we're a decent way through the analysis period).

"So the VAT cut gain over 6mths is mostly eaten up by that. Especially as the prediction is a further rise in January (though that is far more crystal ball gazing).

"Another way to put it in context of what "4.8%" means. Ten days ago the cheapest fix was 14% less than the Price Cap, now it is 8% less as wholesale rates have jumped due to the middle east conflict.

"Ultimately though it does mean people will pay less than they would've done without this. Yet it is going to need a lot more policy cost reductions, likely at the budget, for things to feel materially cheaper.

"PS I should also note the move to focus on electricity prices is logical. It has been strange that govt policy has been to move people away from gas, yet we've seen the gas price get relatively cheaper compared to electricity. This reverses some of that."

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