VAT cut on household electricity bills could give EV market a boost

One of Prime Minister Andy Burnham’s first policy announcements was the removal of the 5% VAT rate on household electricity from 1 October, a move designed to ease cost-of-living pressures by cutting around £45 from the average annual electricity bill. The measure, which will be funded this financial year through the cancellation of the Digital ID programme, is expected to benefit millions of households.

While the policy has been welcomed as a broader cost-of-living measure, it is also expected to improve the economics of electric vehicle ownership for motorists who charge at home.

Lower domestic electricity costs will reduce the day-to-day running costs of EVs, widening the cost advantage over petrol and diesel vehicles. Industry commentators suggest the savings could make electric vehicles more attractive to prospective buyers and improve affordability for existing owners, particularly those who charge overnight using specialist EV tariffs.

The measure is also likely to strengthen the financial case for home charging, allowing EV owners to retain more of the savings associated with electric motoring and potentially reinvest them into upgrading or replacing their vehicles.

However, the announcement has also reignited debate over the gap between home and public charging costs.

While domestic electricity bills will no longer attract VAT, most public charging continues to be subject to the standard 20% VAT rate, increasing the disparity between drivers who can charge at home and those who rely on the public charging network. Industry commentators have argued that the latest policy further highlights the need to address the long-running VAT imbalance affecting public charging.

The issue is particularly significant for drivers living in flats, terraced housing or other properties without off-street parking, who often have little choice but to use public charging infrastructure. These motorists will see limited direct benefit from the VAT reduction despite also being encouraged to switch to electric vehicles.

Nevertheless, the reduction in household electricity costs is expected to strengthen the overall business case for EV ownership, supporting consumer demand at a time when manufacturers continue to expand their electric vehicle ranges and the industry works towards meeting the UK’s zero-emission transport ambitions.

“Removing VAT from household electricity from October would be a welcome, practical measure that benefits millions of households, while strengthening one of the biggest financial advantages of owning an electric vehicle.

“It demonstrates a willingness to support the transition with practical measures that make a real difference to consumers. The low cost of charging at home – made more compelling by smart tariffs – is already one of the strongest reasons for making the switch to electrified mobility. Many EV drivers are charging overnight for a fraction of the cost of filling up a petrol or diesel car. Reducing household electricity costs only strengthens that advantage and will gives more consumers greater confidence to make the change.

“Customers are not hesitating because they don’t want electric cars. They are looking for confidence; confidence in the infrastructure, confidence in the cost savings, and confidence that government policy will support the transition rather than complicate it. This measure alone won’t transform the market overnight, but it’s a positive step.”

The government said the temporary VAT reduction will come into effect on 1 October, with longer-term decisions on funding and future energy support expected to be considered at the Autumn Budget.