SerpApi.Org
Daily Mail journalists select and curate the products that feature on our site. If you make a purchase via links on this page we will earn commission - learn more
Andy Burnham's first policy splash as the new Prime Minister is to eliminate VAT on household electricity bills.
However, the move will only save £45 per year for the average household, or about 90p per week.
Some experts have called the measure a 'start but not a solution' and a 'token gesture'.
However, if you combine the VAT cut with fixing your tariff, if you haven't done so already, you could save more money.
Taking the cheapest deal available today, along with the VAT cut, could save a household with typical usage £352 per year.
Here's what you need to know.
> Compare fixed energy tariffs at price comparison website Uswitch*
When will the VAT cut on energy bills start?
You'll see the cut on your bills from 1 October.
This is also the day that Ofgem, the energy regulator, will put in place a new price cap.
The price cap is set by the energy regulator Ofgem and applies to households that are on a default tariff (not a fixed tariff) and pay by direct debit.
Energy firms place customers on price cap tariffs when they go out of contract, so you will probably be on a price cap tariff if you haven't fixed your energy deal for a year or more.
The price cap doesn't set a cap on your total bill – instead it limits the price that suppliers can charge per unit of energy. If you use more energy than the average household, your bill will be higher.
Energy supplier EDF Energy predicts the October price cap will sit at £1,760 annually for the average household. The current cap is £1,663 per year.
The energy market is volatile and it's difficult to predict what will happen to energy prices, but fixing protects against future shocks and gives you certainty over your bills.
On the other hand, if prices do fall you'll usually need to pay exit fees to move to a better deal.
How much is VAT on energy bills now?
VAT on electricity bills is set at a rate of 5 per cent. The reduction to 0 per cent should take around £45 off the yearly price cap.
An annual saving of £45 a year for households on a standard tariff doesn't look much.
The VAT reduction also applies to fixed energy tariffs, which can be cheaper than the default rate.
Is it worth fixing your tariff?
If you're still on a standard tariff, fixing for 12 months or longer could save you more money. The cheapest fixed deal right now sits £210 below the current cap.
When compared with EDF Energy's prediction for the October price cap, this tariff could lead to savings of £307. The VAT cut boosts this to £352 - again based on average household usage.
Here's what the experts think about whether the VAT cut will benefit households and how fixing your energy tariff could slash your bills further this winter.
> Read more: The cheapest fixed energy deals this week
What is the average household?
The regulator Ofgem has updated the figures it uses to work out how much bills are for the average household.
The average household consists of two or three people and two or three bedrooms.
Before July, Ofgem said that these households typically used 2,700 kWh of electricity and 11,500 kWh of gas – kWh stands for kilowatt hours.
But to reflect falling energy usage, Ofgem has cut these values to 2,500 kWh and 9,500 kWh respectively from 1 July.
Don't be fooled by this. EDF Energy's current prediction for the October cap is £1,760 and the price cap in October last year was £1,755.
But the parity is only because Ofgem is using lower typical consumption values. Your bills will still be more expensive this year compared with last year, so it's worth checking whether you could save money on a different tariff.
It's quick to compare energy tariffs using a price comparison website like Uswitch*. By entering your details, you should be able to find a fixed tariff that suits you.
What do experts say about the VAT cut on bills?
Justin Moy, managing director at mortgage broker EHF Mortgages, says: A whole £4 a month will just about afford a decent coffee at Starbucks or Costa. We really need to see significant change, not just a token gesture.
Michelle Lawson, director at mortgage advisor Lawson Financial, says: Any saving is a saving and this will matter and be welcomed by the more vulnerable and those with lower incomes. These first few months for Burnham will be the test of his life so he needs to read the room and make the right moves.
This is a start but not a solution to the greater problem as to why our bills are so high in the first place. The key is to address the root cause of the infection, not to put a sticking plaster on for now.
Scott Gallacher, director at financial planning firm Rowley Turton, says: Cutting hardworking families’ electricity bills is a great soundbite for the new Prime Minister. But the small print – a saving of just 90p a week – risks turning that soundbite into a political own goal.
To turn around both the country and Labour’s re-election prospects, the new Prime Minister must deliver meaningful change, higher living standards and sustained economic growth – not just a series of small, short-term political wins.
Richard Neudegg, director of regulation at price comparison website Uswitch, says: This change applies to electricity, not gas, but it will apply across the board regardless of tariff type, so if you switch to a fixed deal now, you’ll still get the tax saving from October.
There is continued pressure on wholesale prices, driven by the situation in the Middle East, meaning it is likely that the October 1 price cap will increase. Some supplier predictions suggest the next price cap could rise 5 per cent from October for a household with both gas and electricity, so this tax change could take the sting out of a potential increase.
There's still time for customers to lock in significant savings before winter by switching to a good-priced fixed tariff.
