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UK to cut VAT on electricity, but bills remain among Europe’s highest
The BBC says the wholesale cost can be set by the last, gas-fired unit needed to meet demand, meaning limited gas generation can still lift prices for all suppliers.
The UK government has announced it will cut VAT on domestic electricity to zero starting this October, aiming to ease cost of living pressures, but British households still pay more for power than many other European countries, according to BBC Business. BBC Business reports that in the second half of last year, medium-use households in the UK had the fourth-highest electricity prices among the countries compared across the EU, with prices including taxes and levies. The outlet notes that government steps to reduce bills have come since then, but UK costs remain elevated. One driver is the way electricity prices are determined in the wholesale market: energy suppliers bid to supply power, and because generating costs are relatively low for renewables, wind and solar often win the cheapest bids. Gas generators, by contrast, tend to have higher costs because they must buy fuel and also pay a carbon price for emissions, and the wholesale price is set by the last unit needed to meet consumer demand, which can happen even if gas produces only a small share at a given time. BBC Business also links higher UK bills to higher wholesale gas prices, pointing to the impact of wars in Iran and Ukraine on gas costs, and highlights that the UK generates a relatively high share of electricity from natural gas versus France’s more nuclear-heavy mix. The outlet adds that the wholesale energy costs portion of a typical Great Britain household bill rose from 311 pounds in 2024 to 25 to 320 pounds in 2025 to 26.
Latest closeNat gas $2.895 ▼1.0%