VAT on domestic electricity bills will be cut to zero from today (Thursday, October 1) in line with changes announced by the UK government.

The reduction in the VAT rate from 5% to 0% will apply until the end of the financial year.

It’s estimated it will result in VAT revenue falling by between £1m and £1.4m, depending on electricity consumption during the winter months.

The cut was announced by the Westminster government in July to provide targeted relief for households - and was confirmed by Andy Burnham at the Labour Party conference this week in his first keynote speech as Prime Minister.

The Isle of Man is following suit in line with the obligations under the Customs and Excise Agreement to maintain the same VAT rates as the UK.

This relief will extend to small businesses that qualify for domestic energy VAT relief and are not VAT registered, as well as eligible charities and residential care homes. Qualifying small businesses are those where electricity consumption is below an average of 1,000 kWh per month.

During his keynote speech, Mr Burnham also announced that the triple lock, which guarantees the state pension rises by whichever is highest out of inflation, wage increases or 2.5%, will be ‘adjusted’ from 2030, with the savings made put towards plans for a free-at-the-point-of-use ‘national care service’.

In 2024, then Treasury Minister Dr Alex Allinson announced the triple lock could be scrapped for Isle of Man pensioners who reached state retirement age after 2019. He said the policy was not sustainable in the long-term. The proposal, however, was subsequently dropped ahead of the 2025 Budget.

A government spokesperson said: ‘The announcement by the UK Prime Minister is noted with interest, and the implications and impact will be subject to full consideration in due course by the new administration.’