New PM Removes VAT from Electricity Bills: What It Means for Your Solar Panels

Published 23 July 2026 · Updated 24 July 2026

Andy Burnham has removed VAT from domestic electricity bills as one of his first acts as Prime Minister. The move, announced alongside the creation of a new energy secretary role, could save the average household around £100 a year on electricity costs. But what does it mean if you already have solar panels, or you are thinking about getting them?

VAT on Electricity 5% → 0%

Household Saving ~£100/yr

Solar Install VAT 0% until Mar 2027

Oct Price Cap Reduced forecast

Payback Impact +~6 months

What Actually Changed

On 21 July, Burnham signed an order removing the 5% VAT rate on domestic electricity bills. This is the lowest rate of VAT that can be applied under UK law (the "reduced rate" for domestic fuel). It applies to all households, not just those on means-tested benefits.

The timing is no accident. Cornwall Insight has already revised its October price cap forecast downward to reflect the change, suggesting the typical annual bill could drop by roughly £85-£110 depending on usage. The new energy secretary is expected to set out broader energy market reforms in the autumn budget.

Separately, the government is facing calls to tighten safety regulations around plug-in solar kits. Consumer safety groups are urging ministers not to prioritise speed of adoption over safe installation, particularly for the growing market of socket-connected solar panels. The message from the industry is clear: "do not put speed ahead of safety." We have covered what this means for DIYers in our existing balcony and plug-in solar guide.

What This Means for Solar Homeowners

If you already have solar panels, the VAT cut is straightforward: your electricity bill just got cheaper. Combined with the Smart Export Guarantee payments for the power you send back to the grid, and the existing 0% VAT on solar installations, the economics of solar have shifted slightly.

Your payback period will be modestly longer because the savings per kWh are marginally lower, but this is offset by the fact that the government is clearly signalling a pro-renewables direction. The bigger picture is that energy price stability matters more than the exact pence per kWh.

If you are thinking about getting solar panels, nothing fundamental has changed. The typical 4kW system still saves you £500-£700 a year even with the VAT removed. You might want to run your own numbers through the solar savings calculator with the lower unit rate to see exactly where you land.

What the Price Cap Forecast Change Means

Cornwall Insight dropped its October price cap forecast from an expected rise to a net reduction, specifically because of the VAT cut. That is a rare direction of travel for the price cap, which has mostly gone up over the last four years. The actual October announcement is still subject to wholesale price movements over the summer, but the direction is positive.

For solar + battery homeowners on time-of-use tariffs (like Octopus Flux or Intelligent Octopus), this is doubly good news: you pay less for the electricity you import during off-peak, and you still export during peak at the higher rate. If you are not on a smart tariff yet, Octopus Energy is worth a look - they consistently offer the best export rates in the UK.

Effect on Solar Payback Periods

Let us be clear: the VAT cut does not break the solar business case. Here is the rough maths:

Annual saving before VAT cut: ~£600 on a typical 4kW system with 50% self-consumption
Annual saving after VAT cut: ~£570 (about 5% less in bill savings)
Payback before: ~8-10 years on a £5,000-£6,000 system
Payback after: ~8.5-10.5 years, assuming the same system cost

In other words, your payback extends by maybe six months. But with battery storage making self-consumption rates of 70-80% achievable, that changes the numbers significantly. Add a battery and you are back to an 8-year payback even with the lower unit rate. Our home battery guide has the full breakdown.

What about the 0% VAT on Solar Installations?

The 0% VAT rate on solar panel and battery installations is a separate policy, originally introduced by the previous government and extended by Burnham. It runs until 31 March 2027. It still applies, and it is still the bigger financial incentive by far. On a £7,000 install that saves you £1,400 in VAT, the electricity bill VAT reduction is a rounding error.

If you are going DIY, you do not get the 0% installation VAT break (it only applies to supply-and-install from a VAT-registered contractor), but you still benefit from the lower electricity unit rate once your system is live.

Should You Do Anything Different?

Honestly? No. The fundamentals are the same:

Solar still pays back well within the panel warranty period (25 years)
Battery storage is worth adding if your daytime export is high
The UK grants and incentives landscape is the most favourable it has ever been
The new government is clearly on the side of renewables, which reduces regulatory risk

The biggest risk to solar homeowners right now is not policy - it is getting a bad install. Use MCS-certified installers for grid connection if you want SEG payments, and if you are doing it yourself, follow BS 7671 to the letter. If you are considering a plug-in kit, read up on the safety concerns and make sure yours meets the right standards.

Work Out Your Payback

Use our free solar savings calculator to see exactly how the numbers stack up for your home, your roof, and your electricity usage.

Calculate Your Savings

Common Questions

What did Andy Burnham actually do with electricity VAT?

On 21 July 2026, Prime Minister Andy Burnham signed an order removing the 5% VAT rate on domestic electricity bills. This is the reduced rate for domestic fuel, the lowest VAT that can be applied under UK law, and it applies to all households regardless of income or benefits status. The change took immediate effect.

How does removing VAT from electricity affect solar payback?

The impact is modest. On a typical 4kW system with 50% self-consumption, annual savings drop from around £600 to £570 - roughly 5% less. Payback extends from 8-10 years to 8.5-10.5 years, adding about six months. Adding battery storage brings it back to an 8-year payback by lifting self-consumption to 70-80%.

Does the 0% VAT on solar installations still apply?

Yes, the 0% VAT rate on solar panel and battery installations is a separate policy that runs until 31 March 2027. It is still the bigger financial incentive - on a £7,000 install it saves you £1,400 in VAT, making the electricity bill VAT cut a rounding error by comparison. The 0% only applies to supply-and-install from a VAT-registered contractor, not DIY self-installs.

Should I change my solar plans because of the VAT cut?

No. Solar still pays back well within panel warranty periods (25 years), battery storage is still worth adding if your daytime export is high, and the UK grants and incentives landscape is the most favourable it has ever been. The new government is clearly pro-renewables, which reduces regulatory risk. The bigger risk is getting a bad install, not the policy direction.

What does the October price cap forecast change mean?

Cornwall Insight revised its October 2026 price cap forecast downward specifically because of the VAT cut, which is a rare direction of travel for the cap. The actual October announcement still depends on wholesale price movements over the summer, but the direction is positive. For solar and battery homeowners on time-of-use tariffs like Octopus Flux, you pay less for imported off-peak power while still exporting at peak rates.

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