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Martin Lewis has described the government’s decision to remove VAT from electricity bills from October as a “good totemic step and very welcomed”, but cautioned that “people won’t feel much benefit”.

Prime Minister Andy Burnham’s announcement confirms that electricity bills will be VAT-free from 1 October, a move projected to cut £45 off a typical home’s annual bill, based on Ofgem’s current price cap.

This intervention comes amid stark forecasts that household energy prices will remain high throughout the upcoming winter, following a substantial £221 jump to the price cap that took effect on 1 July, raising it to £1,862 a year.

Despite a 60-day ceasefire between the US and Iran helping to stabilise wholesale gas markets, the energy price cap is currently forecast to fall by only around 0.5 per cent in October compared to July, according to analysis by Cornwall Insight.

The firm also highlighted that while Ofgem updated its definition of a typical consumer from July to reflect falling household energy use – adjusting the headline figure to £1,654 – this represented “little change” on a like-for-like basis.

The energy analyst further warned that conflicting reports on the reopening of the Strait of Hormuz, coupled with patchy progress in peace talks and uncertain timelines for repairing key regional infrastructure, mean prices are set to remain high, if less volatile than experienced in the spring.

Further, while July’s higher prices have been cushioned by warmer weather and lower household energy use, the October cap will land as people switch their heating back on and will have a greater impact on household finances.

Martin Lewis welcomed the cut on VAT on electricity bills but admitted “people won’t feel much benefit” due to an expected Price Cap rise.

He shared on social media: “This is a good totemic step and very welcomed. Yet in practice people won’t feel much benefit. The energy Price Cap on 1 October for electricity & gas is currently predicted to rise 3.1 per cent which on typical bills is over £50 on an annualised basis (and that’s likely to be in the right ballpark as we’re a decent way through the analysis period).

“So the VAT cut gain over 6 months is mostly eaten up by that. Especially as the prediction is a further rise in January (though that is far more crystal ball gazing).

“Another way to put it in context of what ‘4.8 per cent’ means. Ten days ago the cheapest fix was 14 per cent less than the Price Cap, now it is 8 per cent less as wholesale rates have jumped due to the Middle East conflict.

“Ultimately though it does mean people will pay less than they would’ve done without this. Yet it is going to need a lot more policy cost reductions, likely at the budget, for things to feel materially cheaper.

“PS I should also note the move to focus on electricity prices is logical. It has been strange that government policy has been to move people away from gas, yet we’ve seen the gas price get relatively cheaper compared to electricity. This reverses some of that.”

Mr Lewis added: “While the saving is very small, compare this to the first big consumer act of the Starmer administration… a cut in Winter Fuel payment and introduction of means testing via a broken system (pension credit).

“Let’s hope this is an important signal of the direction of travel.”

Richard Neudegg, director of regulation at Uswitch.com, said: “Removing 5 per cent VAT on electricity bills from 1 October will be warmly welcomed by households as they head into the colder months, when energy use rises sharply. This would be £45 off a typical home’s annual bill based on the current electricity price cap.

Mr Neudegg added: “There is continued pressure on wholesale prices, driven by the situation in the Middle East, meaning it is likely that the October 1 price cap will increase.

“Some supplier predictions suggest the next price cap could rise 5 per cent from October for a household with both gas and electricity, so this tax change could take the sting out of a potential increase.

“The cheapest deals are currently undercutting standard rates by £210 for the average household. Doing so on top of this VAT change could leave households considerably better off over the winter.”

Simon Francis, coordinator of the End Fuel Poverty Coalition, said: “Removing VAT from electricity bills is a positive statement of intent by the new administration.

“But it does not address the scale of what households are facing, with millions still left paying an unaffordable share of their income on energy and record levels of energy debt built up over successive winters of high bills.

“The Prime Minister’s next move must be to go even further on bringing down the cost of energy and bringing in increased levels of targeted support for those who need it most: an enhanced Warm Home Discount, reformed Cold Weather Payments and an energy debt relief scheme.”

He added: “This breathing space is also not a cure. The only way to bring bills down for good is to change how they are set.

“That means breaking the link between gas and electricity prices, tackling excess profits in the energy industry and ending our exposure to volatile fossil fuel markets through home-grown renewables and more energy efficient homes.”