NEWS: Electricity VAT to be scrapped, but will it actually save you money?

The new Andy Burnham administration has just announced on the 1st of October for six months it's going to get rid of VAT on domestic electricity bills.Now this is good news.It means a saving everything else remaining equal.But everything else isn't going to remain equal.So I want to give you my back -of -the -cab explanation for what this actually means for the pound in your pocket.I'm on my way to a TV show.

So a cut on domestic electricity is a cut of 4 .8 % of all electricity bills.Whether you're on the price cap, whether you're on a fix, everybody's bills should be reduced.But the price cap, which is what 60 % of people in England, Scotland and Wales are on, if you're on your company's standard tariff, you're on a price cap tariff, that moves every three months.And of course, it's going to move on the 1st of October.Now the prediction for the 1st of October price cap is pretty tight right now as we're most of the way through the assessment period.And it is likely to rise.

The current prediction is 3 .1%.So while you've got 4 .8 % coming off electricity bills, you've got 3 .1 % going on to double that.gas and electricity bills.That 3 .1 % is equivalent over a year to around £50.So let's do it for six months and say it's £25.So you've got £45 coming off bills but £25 going on to bills.

So on the 1st of October it's looking like the actual saving over six months would be £20.But the price cap moves again in January, and currently the prediction is in January it's going up again by about two percent, although that's much more crystal ball gazing.

If that were to happen it would negate all the benefit of the VAT cut.Now we need to be straight.You are still saving compared to what you would have been in if this cut hadn't been made, but no one is really going to feel very much change in their pocket from this, you know, and it isn't a huge amount.So while I think it's a good totem, in practical terms It isn't enough to make you feel a change in anything.Just to put it in perspective...Two weeks ago, the cheapest fix was 14 % less than the energy price cap.

Now the cheapest fix is 8 % less.That change is just because of what's gone on in the Middle East.And that's bigger than the VAT cut.So this is a small movement in something that varies a lot.certainly a better start than when Starmer came in and their first consumer move was cutting the winter fuel payment and moving it to a broken means -tested system.This is a good totem but for me it's only a totem.

I hope that makes sense.