The new Prime Minister Andy Burnham has announced the removal of VAT from domestic electricity bills, in one of his first acts as Prime Minister, designed to “put more money in people’s pockets and bring back hope”.
Whilst this is welcomed and will make charging an electric vehicle (EV) at home even cheaper, industry leaders have warned it will also widen the cost gap for drivers who rely on public charging.
Andy Burnham confirmed that VAT on household electricity will be cut from 5% to 0% from 1 October, describing the move as part of efforts to ease the cost of living for families.
The VAT reduction is expected to lower the annual Ofgem price cap by around £45.
"Westminster has not been working for people for too long, with families struggling with the cost of living," said Burnham.
"That needs to change. I said I wanted to give people breathing space, and that's what I'm announcing on my second day as Prime Minister.
"We're taking immediate action to cut taxes on energy bills, put more money in people's pockets and bring back hope."
However, campaigners say the announcement further highlights the disparity between motorists who can charge at home and those without off-street parking, who continue to pay 20% VAT when using public chargepoints.
The two-tier VAT system has long been criticised by the EV industry, with calls for the Government to align VAT rates across home and public charging.
Vicky Edmonds, Chief Executive Officer of EVA England, said: "Cutting VAT on household energy bills is welcome news. For EV drivers who charge at home, it will make cars that can already save them thousands of pounds even cheaper to run.
"But millions of drivers without a driveway will not fully benefit because they can't easily access home charging.
"The Government’s Cost of Public Charging Review must now deliver real structural reform to bring down prices at the chargepoint. That means tackling the significant taxes, levies and electricity costs faced by chargepoint operators and ensuring savings are passed directly on to drivers.
"The transition cannot be fair while people pay substantially more simply because they cannot charge at home."
Michael Braybrook, managing director UK at Zaptec, said the VAT cut would strengthen one of the key financial advantages of EV ownership for those with home charging.
"Cutting VAT on household electricity is a practical way to give people some relief on bills. For EV drivers who can charge at home, it also makes one of the biggest advantages of electric driving even stronger," he said.
