UK cuts electricity VAT and raises tobacco duties as energy price cap climbs

Households across the United Kingdom will no longer pay the 5 percent VAT on electricity starting 1 October, a policy introduced by Prime Minister Andy Burnham shortly after assuming office. Government estimates suggest the removal will lower the average annual electricity bill by about £45, assuming providers pass the savings on. The same day, Ofgem’s energy price cap will rise to £1,723 for the October-December quarter, adding roughly £60 to a typical household’s yearly cost.

The regulator will set the next cap for January-March 2027 in November, with EDF already projecting a 30 percent increase to £2,098 later in the year. In response to rising energy costs linked to global conflicts, officials are considering a similar VAT exemption for gas, likely to be announced in Chancellor John Healey’s first budget at the end of October. Additionally, the government is raising excise duties on cigarettes and vaping liquids, imposing a £2.20 levy per 10 ml of vape liquid and an extra £2.20 per 100 cigarettes, intended to keep smoking more expensive than vaping.