VAT Cut on Electricity Bills and £2 Bus Fare Cap

New Prime Minister Andy Burnham yesterday announced two measures intended to support household budgets amid ongoing cost-of-living pressures.

He’s proposed scrapping VAT on domestic electricity bills and introducing a nationwide £2 cap on single bus fares.

While they’re hopefully the first of many initiatives to help families and lower-income households, here’s what these steps could mean for your finances.

VAT-free electricity from October 2026

VAT on household electricity will be cut from 5% to zero for six months, from the start of October 2026 until the end of the financial year in March 2027. This should save typical households around £45 per year and will be funded by the scrapping of the £1.8bn digital ID programme.

This welcome saving – around £7.50 per month – should help a little just when heating and lighting costs typically start to climb. Any reduction on an unavoidable monthly outgoing helps, especially for any families already juggling direct debits or struggling with debt.

It’s important to note that anyone who drives an electric vehicle but uses a public charging point won’t benefit from this policy. While at-home chargers are covered by the reduction, public charge points will remain subject to the 20% VAT rate in place currently. And with around one third of UK households not having off-road parking, this gap between public and private charging costs will impact many.

Bus fares capped at £2 from January 2027

This second policy announced may sound familiar to anyone who lived in Greater Manchester during Andy Burnham’s time as mayor.

In England, single bus fares will be capped at £2 from January 2027, in another pledge to ease the cost of living for ordinary people. The current nationwide cap is set at £3 until the end of March 2027, so this is a meaningful cut for many.

A one-third reduction in fares could provide significant savings for regular commuters, as well as families who rely on buses as an affordable option for the school run.

The bottom line for your household

Neither measure alone will transform an already tight budget – but they will chip away at two of the most unavoidable monthly costs. Energy and travel are essentials for households of any income, so look for electricity bill changes from October and lower bus fares from January.

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