On 21 July, in his first week as Prime Minister, Andy Burnham announced that VAT on domestic electricity bills will fall from 5% to 0% from 1 October 2026, initially for six months. Miatta Fahnbulleh was appointed Energy Secretary at the same reshuffle, with Ed Miliband moving to the Foreign Office. Follow the wider implications at underfloorheating.info and compare suitable professionals through the Underfloor Heating Directory.
The headline figure being quoted is around £45 a year for a typical household. Some coverage has treated this as a meaningful cut to heating bills; other coverage has dismissed it as too small to notice. Both readings miss the point that matters most to anyone running underfloor heating: the cut applies to electricity only, and gas keeps its 5%. That narrows the gap between the two fuels, which is the number that decides whether electric heating makes financial sense.
Here is what the change does and doesn't do.
The arithmetic
Under the July-September 2026 price cap, the average electricity unit rate is about 26.11p per kWh and gas is about 7.33p per kWh, both including 5% VAT. Strip VAT out of electricity and the rate falls to roughly 24.87p per kWh - a reduction of about 4.8%.
That figure is the honest one to work from. It is not a dramatic cut, but it applies to every kWh you use.
For electric underfloor heating, a household spending £250 a year on its floor heating would save around £12; one spending £400 would save around £19. If your whole home runs on electric heating, the saving scales up accordingly. This is a straightforward percentage off what you already pay - nothing about how the system runs changes. Our electric underfloor heating guide and the running costs breakdown both work from unit rates, so you can apply the 4.8% yourself to whatever figure fits your home.
For heat pumps feeding underfloor heating, the change is more interesting, because it shifts the comparison with gas.
A condensing gas boiler running at roughly 90% seasonal efficiency delivers useful heat at about 8.1p per kWh at current gas rates. A heat pump on a well-designed underfloor system, achieving a seasonal performance factor (SCOP) of 3.5, delivers heat at about 7.1p per kWh once VAT comes off electricity - down from around 7.5p today. At a SCOP of 4.0, which good underfloor design at low flow temperatures can reach, that falls to roughly 6.2p per kWh.
The break-even point - the SCOP a heat pump needs to match a gas boiler on running cost - drops from about 3.2 to about 3.05.
The part that gets lost in the headlines
Heat pumps on underfloor heating were already ahead of gas on running cost before this announcement. That happened on 1 July, when the price cap rose 13% overall but gas jumped around 24% while electricity rose only about 5%. We covered that shift in our piece on the July price cap. The VAT cut widens an advantage that already existed; it does not create one.
Equally, it does not rescue the case for direct electric heating against gas. Electric underfloor heating converts electricity to heat at close to 100%, so it still costs roughly three times as much per unit of heat as a gas boiler - the ratio moves from about 3.6:1 to about 3.4:1. That is why electric systems remain best suited to bathrooms, small extensions and rooms without a practical wet connection, as set out in our electric versus water comparison.
Four caveats worth knowing
It is six months, not forever. The cut is funded for the remainder of the 2026-27 financial year. Anything beyond March 2027 is a matter for a future Budget. Do not build a ten-year investment case on it.
Your October bill may still be higher than today's. Cornwall Insight has cut its forecast for the October-December cap to about £1,699.59 a year for a typical dual-fuel household, down from £1,906.27 before the announcement. But that is still around 2% above the current £1,663 level, because wholesale gas prices have risen. Ofgem confirms the actual October cap by 26 August, so the unit rates above will change.
The "typical household" figure moved too. Ofgem revised its typical consumption assumptions on 1 July, cutting the assumed gas figure by 17% and electricity by 7%. That makes headline annual bills look lower without anyone using less energy. Compare unit rates, not annual averages.
VAT was never the main distortion. Jan Rosenow, professor of energy and climate policy at Oxford, made the point plainly: VAT was only 5%, and the bigger imbalances sit in the policy levies loaded onto electricity rather than gas. Whether this is a first step towards proper rebalancing or a one-off is the open question, and it is the one that will actually determine long-term running costs for electrically heated homes.
What to do about it
Practically speaking: nothing urgent. Suppliers including British Gas have confirmed they will apply the reduction automatically from 1 October, including to customers on fixed tariffs, so there is no action to take and no reason to switch tariff for it.
If you are weighing up a heat pump with underfloor heating, the more useful lever is still system design rather than tariff timing. Getting flow temperatures down - through correct pipe spacing, adequate floor coverage and sensible controls - moves your SCOP by far more than 4.8%. Our heat pump and underfloor heating guide covers what good design looks like, and if you are at the quoting stage, the sister directory lists MCS-approved installers certified for the heat pump work that Boiler Upgrade Scheme funding requires.
The VAT cut is a modest, welcome nudge in a direction that helps electrically heated homes. It is not a reason to rush a decision either way.
Sources: ECIU: VAT to be removed from electricity bills / reshuffle comment (21 July 2026) · British Gas: UK Government VAT cut on electricity bills explained (22 July 2026) · Solar Power Portal: Burnham's electricity VAT cut could 'rebalance' prices, Cornwall Insight lowers October forecast (22 July 2026) · Ofgem: Energy price cap will rise by 13% from July · Ofgem: Review of typical domestic consumption values - decision · Cornwall Insight: Default tariff cap predictions