Prime Minister Andy Burnham has announced that VAT on household electricity bills will be cut from 5% to 0% from 1st October as part of his first package of measures to tackle the cost-of-living crisis. The government says the move will save the average household about £45 a year and provide some much-needed "breathing space". While the tax cut is aimed at households, landlords who pay electricity bills on behalf of tenants could also benefit from lower running costs.

Good news for landlords who include bills

The biggest winners in the private rented sector are likely to be landlords who include utilities in the rent, such as many HMO operators, providers of serviced accommodation and those offering all-inclusive tenancies. The VAT reduction will be applied automatically by energy suppliers meaning that landlords paying domestic electricity bills should see a small reduction in their monthly costs from October.  The exact saving will depend on the property's electricity use, with larger shared homes likely to benefit more than the government's estimate for a typical household.

A small boost for tenants

Most renters who pay their own electricity bills will also benefit automatically, including those on fixed tariffs. Although the average saving is modest compared with the steep increases in energy prices seen over recent years, it could help ease pressure on household budgets ahead of winter. For landlords, any measure that improves tenant affordability is likely to be welcomed, particularly as many renters continue to face higher living costs.

Relief, not a solution

The announcement comes just weeks after Ofgem's latest energy price cap increase pushed bills higher for millions of households. The new price cap has increased by 13% compared to the previous cap period.   While removing VAT will reduce electricity costs slightly, it does little to address the underlying reasons energy remains expensive. Experts expect wholesale prices to remain volatile into the winter, meaning landlords should not expect a significant fall in overall utility bills. Landlords looking to reduce long-term energy costs may also want to consider making their properties more energy efficient. Eco-friendly homes offer practical ways to improve efficiency while potentially reducing running costs.

Political debate over funding

The measure will be funded by cancelling the proposed Digital ID programme, which ministers say frees up enough money to cover the cost of the VAT cut this financial year. However, opposition politicians have questioned whether those savings are genuine, arguing that funding for the Digital ID scheme had not yet been allocated. The government has confirmed the VAT cut is guaranteed only until the end of the current financial year, with any extension requiring approval in a future Budget.

What landlords should do

Landlords should update their financial forecasts to reflect the change and make sure any internal budgeting for electricity costs takes account of the new VAT rate from October. Those operating HMOs or other properties where utility costs form part of the tenancy arrangement might want to review how they monitor and allocate energy expenditure, particularly where electricity usage varies significantly between properties. The announcement also highlights the importance of having contingency plans. With the VAT reduction limited to the current financial year, landlords should avoid relying on the saving as a permanent reduction in running costs.

A small change with wider implications

This VAT cut won’t transform the economics of property ownership, but it is another sign that household affordability remains a key political issue. For landlords, the wider message is that operating costs and tenant affordability will continue to be closely linked. Keeping accurate records, reviewing budgets regularly and staying ahead of policy changes will remain essential as the rental market adjusts to the new government’s approach.