£45 Off Your Electricity From October

The headline says £45 a year off your electricity bill. The maths, once you sit with it, says something quieter.

The Burnham government confirmed on 21 July 2026 that VAT on domestic electricity will be cut from 5% to 0% between 1 October 2026 and 31 March 2027. That is six months, not forever. England, Scotland and Wales are covered in full. Northern Ireland will receive equivalent funding, but the practical mechanism will differ.

What the £45 figure actually means

The £45 headline is the gross saving. It assumes nothing else changes. Two things are about to change at the same time:

So: £45 coming off, £25 going on. Net saving over the six-month window: about £20.

Then the cap resets again in January 2027. Current forecasts suggest a further rise of around 2% on top, which would largely cancel out the VAT saving by the second quarter. That is the honest read of the policy as of 21 July 2026. It is a real saving, but it is small. And it is time-limited.

Why this still matters for your FIRE number

If you are modelling a FIRE scenario in Delphina, your ongoing expenses are the single biggest lever after your savings rate. A £45/yr assumption vs a £45/yr assumption, applied over 30 or 40 years of compounding, is the kind of small input that quietly shifts a retirement date by weeks. Not months. But weeks.

1. Update your electricity assumption in Delphina

Open your scenario. In the ongoing expenses section, add an electricity adjustment that runs from 1 October 2026 to 31 March 2027. Two reasonable ways to model it:

• Pessimistic but accurate: -£0 over the six-month window. The net £20 saving is roughly cancelled by the expected January cap rise.
• Optimistic but defensible: -£45/yr, but only for those six months, then back to your baseline.

Either is defensible. The point is to make the assumption visible in your scenario, not to bury it in a generic "bills" line.

2. Check your tariff

• If you are on a variable tariff (the Price Cap): the saving lands automatically. You do not need to do anything.
• If you are on a fixed tariff: suppliers are expected to pass the saving through to your unit rate. If your supplier does not pass it through, the saving effectively disappears. Diarise your renewal date. If the saving is not applied within 30 days of 1 October, raise it with your supplier.
• If you are on a smart or time-of-use tariff: check whether the VAT saving applies to all units or only off-peak. The detail will vary by supplier.

3. Pair this with the savings habit, not against it

The £20 net saving over six months is not a windfall. The honest move is to route it straight into the highest-priority gap in your plan: usually overpaying a fixed mortgage (if you are on a rate above your investment-return expectation) or topping up your pension (if you have unused carry-forward or headroom in your £60,000 annual allowance).

If you have Marcus's 4.9% regular saver running, the £20 does more work there than it does in a current account at 1.5%.

What is not changing

The cut is electricity only. Gas bills are unaffected. If you are on a dual-fuel tariff, expect to see the reduction appear on the electricity line of your bill, not as an overall percentage off the total.

Prepayment meters are included. The cut applies the same way regardless of how you pay.

Heat pump economics improve marginally during the six-month window because heat pumps are electricity-only. If you are considering a heat pump, the window from October 2026 to March 2027 is the cheapest period to run one you will see for some time. Electric vehicle running costs improve marginally too. The cut is small but real for anyone doing serious mileage on home charging.

This is general information about a UK government policy change, not personal financial advice. Energy policy details may evolve between now and 1 October 2026.