Having a heat pump just got even cheaper to run. It was already the case that a well-installed heat pump can turn 1 kWh of electricity into 3-5 kWh of heat and smart, heat-pump-friendly tariffs already widen that gap further by shifting running costs onto cheaper off-peak electricity. Now Prime Minister Andy Burnham has added a third saving on top: from 1 October, VAT on electricity drops from 5% to 0%, and the cut applies to electricity only, not gas. Three separate reasons to switch, and only one of them existed a week ago.
Heat pumps were already the cheaper way to heat a home
Efficiency is the first reason. A modern heat pump running at a 4 SCOP delivers 4 kWh of heat for every 1 kWh of electricity it uses. On typical Ofgem rates, that works out at around 6.1p per kWh of heat delivered, against roughly 7.1p per kWh from a gas boiler once combustion losses are accounted for. The heat pump wins on running cost before any tariff or tax changes are even considered. But, this is only true when the heating system is designed well.
Tariffs are the second reason. A growing number of suppliers now offer dedicated heat pump tariffs, with cheaper electricity overnight or during off-peak windows. A heat pump with good controls can shift a large share of its running hours into those cheaper periods, cutting the effective cost per kWh further still, on top of the efficiency advantage above.
Both of those were true before this week. What's new is a third saving stacked on top of the first two.
NEW: VAT is coming off electricity
Andy Burnham announced the cut as one of his first acts as Prime Minister, timed to land inside the next Ofgem price cap. Suppliers are expected to pass it straight through, including to customers on fixed tariffs, the same approach used for the £150 cut announced at the last Budget.
The mechanics: VAT is charged on top of the pre-tax unit price, so removing a 5% tax doesn't cut the bill by a full 5%. Based on the current price cap of 26.11p per kWh (1 July to 30 September 2026), the VAT-free rate works out at roughly 24.87p per kWh, a saving of about 1.24p per kWh, or just under 4.8%. Ofgem confirms the actual October cap on 26 August, so the final numbers may move slightly, but the mechanism is fixed.
Small businesses on the domestic VAT rate, plus charities and residential care homes, get the same relief. Northern Ireland can't apply the cut directly because EU VAT rules still govern electricity there post-Brexit, so the NI Executive gets matching funding to pass on instead.
Why the VAT cut favours heat pumps specifically
Here's the part that matters most for anyone weighing up a heat pump against a gas boiler: the cut only touches electricity. Gas keeps its existing VAT rate. That's a small detail with an outsized effect, because it's the same principle already reshaping the economics in our look at the April price cap: the "spark spread", the price gap between electricity and gas, keeps narrowing, and every time it does, heat pumps get relatively cheaper to run.
A gas boiler household sees no change to its heating fuel cost from this measure. A heat pump household sees its entire heating fuel bill drop by that same 4.8%, because heat pumps run on electricity from top to bottom. On top of that, most heat pump households use noticeably more electricity overall than the average home, since heating and hot water have moved from the gas meter to the electricity meter. Apply a fixed percentage cut to a bigger base and the saving in pounds is bigger too.
We've written before about why gas still sets UK electricity prices, and why meaningful structural relief is still some years off. This VAT cut doesn't fix that underlying problem, but it's a real, immediate move in the right direction, and it costs heat pump owners nothing to benefit from it.
The numbers, worked through
Using the same 3-bedroom semi from our price cap analysis (11,500 kWh of annual heat demand, a 4.0 SCOP heat pump):
- Electricity for heating alone: 2,875 kWh a year (11,500 ÷ 4.0)
- Before 1 October: 2,875 kWh x 26.11p = roughly £751
- From 1 October: 2,875 kWh x 24.87p = roughly £715
- Saving on heating alone: an additional £36 a year
Add typical household electricity use outside of heating, lighting, appliances, hot water top-ups, an EV charger if there is one, and total annual electricity consumption for an all-electric home easily reaches 5,500+ kWh. Apply the same 4.8% cut across that full total and the saving climbs to roughly £69 a year, well above the £45 the government quotes for an average (mostly gas-heated) household, because that average is calculated on a much smaller electricity bill.
That £36-69 a year sits on top of the efficiency and tariff savings already covered above. It doesn't replace them, it stacks with them.
Note: these are illustrative figures based on the currently published price cap. Ofgem confirms the actual October rate on 26 August, so the final saving will shift slightly either way.
Is this connected to the 26 August price cap review?
Yes, deliberately. The VAT cut is timed to land inside the same price cap period Ofgem sets on 26 August for 1 October to 31 December. Once that cap is confirmed, we'll update the figures above with the real October unit rate rather than today's estimate.
Get a heat pump that actually earns these savings
None of this happens by itself. A heat pump only delivers the efficiency, tariff and tax savings above if it's sized and installed properly. At Heat Geek, we specialise in well-designed, efficient installs that target a specific SCOP, and run at lower flow temperatures so your system uses the least electricity possible to keep the home warm.
Our ZeroDisrupt™ approach uses AI and real-world performance data to avoid unnecessary equipment swaps, keeping install costs down without sacrificing efficiency. Read more about what ZeroDisrupt means for your install.
If you're still heating with gas, the running-cost gap just got wider. See what a heat pump would cost to run in your home. Get an Instant Estimate
Why Heat Geek?
Heat Geek is the UK's leading platform for high-performance heat pump installs. We design systems that meet, and often exceed, the technical rigour of the Future Homes Standard, so you get the same low running costs promised to new-build buyers, in the home you already live in.
