Why The New Electricity VAT Cut Quietly Tips The Balance Toward Heat Pumps

If you’ve been watching the news, you might have heard that Andy Burnham has cut VAT on household electricity from 5% to 0%, starting 1 October 2026. On the surface, it sounds like another small cost‑of‑living measure. But if you look at what’s happening behind the scenes with gas, grants and typical energy use, it starts to look like something more important.

For homeowners in Surrey, Berkshire, Hampshire, West London and nearby areas, this change arrives at exactly the moment many of us are asking a bigger question: do we keep investing in gas, or is it time to move over to electric heating?

At Your Energy Your Way, we spend our days helping people answer that question in real homes, with real budgets. That experience is why we think this VAT cut is worth paying attention to, even if the headline numbers look modest at first glance.

Gas vs electricity: same prices, different treatment

From 1 October 2026, the UK will treat gas and electricity differently on your bill:

• VAT on domestic electricity drops from 5% to 0%

• VAT on domestic gas stays at 5%

The energy regulator, Ofgem, has also updated what it considers a “typical” household’s gas use: it now assumes 9,500 kWh per year for a medium gas user, down from 11,500 kWh. At the same time, the Boiler Upgrade Scheme (BUS) continues to offer £7,500 towards a heat pump for most homes, with a boost to £9,000 for eligible off‑gas‑grid homes currently heated by oil or LPG from 21 July 2026.

None of these changes magically lower the unit prices you pay. Energy still moves with wholesale markets and price caps. What they do change is how the system treats different fuels:

• Electricity used in homes is given tax relief.

• Gas is not given equivalent relief.

• Grants exist to help you move away from fossil heating and towards heat pumps, not to keep you on gas.

That’s the direction of travel in policy terms. The interesting part is what happens when you apply it to a “typical” home on a “typical” tariff and ask a simple question: what would I actually pay?

A typical home: what the electricity VAT cut means for your bills

To make this concrete, picture a typical mid‑use home under the current price cap. Ofgem’s medium gas user figure of 9,500 kWh per year is a sensible starting point. For this example, we assume:

• Annual gas use: 9,500 kWh (Ofgem’s typical medium gas user)

• An existing gas boiler running at about 85% efficiency.

• An air source heat pump with a seasonal efficiency (SCOP) of 4.

• Electricity unit rate: 26.11p/kWh (current GB average cap)

• Gas unit rate: 7.33p/kWh (current GB average cap)

• Gas standing charge: 29.04p per day (around £106 per year)

With these figures:

Heating option	Now (Jul–Sep 2026)	From Oct 2026 (VAT cut)
Gas boiler heating cost	~£696/year	gas VAT unchanged
Heat pump heating cost	~£527/year	~£502/year (electricity VAT at 0%)
Annual running cost saving	~£169/year	~£194/year

That already gives the heat pump a running‑cost advantage of roughly £169 per year, without any change in VAT. Factor in 0% VAT from October and you're looking at an increased saving of around £194 per year.

If a household also comes off the gas grid completely, the gas standing charge of about £106 per year disappears. That increases the savings to roughly:

• £275 per year now

• £300 per year from October

These are indicative figures, but they give a clear direction of travel. Heat pumps already offer lower running costs than gas for a typical home, and the VAT change improves that advantage further.

Why this matters when your boiler is nearing the end

Most people do not replace heating systems because policy has changed. They replace them because a boiler has become unreliable, an extension is planned, or bills have crept steadily upwards.

When that moment comes, you really have two paths:

• Stay on gas. You install another gas boiler and keep paying VAT on the fuel it uses, relying on a technology that long‑term plans expect homes to phase down.

• Move to electric heating. You install a heat pump, potentially with grant support, and run your heating on electricity that will be VAT‑free from October.

The VAT cut doesn't force you onto one path or the other. What it does is shift the balance. It takes a situation where heat pumps were already competitive on typical running costs and adds a clear tax advantage on the electric side.

Layer in BUS and the picture becomes more interesting. Grant support helps with upfront cost; VAT relief improves ongoing costs. Both point in the same direction: away from fossil heating and towards heat pumps.

What this looks like in the kind of homes we work on

Many of the homeowners we speak to across Surrey, Berkshire, Hampshire and West London are in a very similar position.

They have an older gas boiler that's becoming more expensive to run, energy bills that seem to keep climbing, and a home that's becoming uncomfortable during increasingly hot summers. At the same time, they're starting to think about improvements like solar panels, battery storage, an EV charger or replacing their heating system.

Rather than making assumptions, we look at the numbers. We'll compare your current gas usage with the expected running costs of a correctly designed heat pump, using your home's actual energy consumption and the latest energy prices.

From there, we can factor in any available Boiler Upgrade Scheme (BUS) funding, explain what the move to 0% VAT on electricity could mean for your annual running costs from October, and show how adding solar PV or battery storage could reduce those costs even further.

The result is a clear, personalised picture of what makes the most financial sense for your home, both now and in the years ahead. Rather than relying on headlines or assumptions, you'll understand exactly how the changes apply to you and whether making the switch is the right decision.

Is gas being left behind?

When you look at these changes together, a clear direction begins to emerge.

The energy regulator's assumptions now reflect the fact that homes are using less gas than they did in the past. Government funding is focused on helping households move away from oil, LPG and gas by supporting the installation of heat pumps. Now, from October, electricity will also benefit from 0% VAT, while gas will continue to attract VAT.

None of this means gas is disappearing overnight. Millions of homes will continue to rely on gas boilers for years to come, and the gas network isn't going anywhere in the immediate future.

However, if you're thinking about replacing your heating system in the next few years, these changes are worth paying attention to. They show where government policy is heading and where financial support is being directed.

The long-term trend is clear. Homes powered by electricity, particularly when combined with technologies such as heat pumps, solar PV and battery storage, are becoming increasingly attractive both financially and environmentally. Gas will remain part of the UK's energy mix for some time, but the incentives are increasingly encouraging homeowners to look towards lower carbon alternatives.

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Ready to explore your options?

Every home is different. The right heating system depends on your property, how you use energy and what you're hoping to achieve over the coming years.

If you're wondering whether a heat pump is right for you, or how the latest VAT changes could affect your running costs, we're here to help. We'll answer your questions, explain your options clearly and give you honest advice based on your home, not a one-size-fits-all recommendation.

Whether you're ready to replace your heating system now or simply planning ahead, a conversation with one of our team can help you understand what's possible and what makes the most financial sense.

Book a free, no-obligation call and we'll help you make an informed decision, with no pressure and no hard sell.