Burnham VAT cut: Giant leap for politics, only a small step for fleets

When Andy Burnham used one of his first acts as Prime Minister to scrap VAT on domestic electricity, the headlines wrote themselves.

A tax cut. A cost of living win. A new Government moving fast. From 1st October, the rate on qualifying domestic electricity drops from 5% to 0%, saving the average household around £45 a year. Welcome news for anyone opening an energy bill this winter.

However, while this is good news for household bills, it is also a reminder that electric vehicle (EV) policy is still largely stitched together on a piecemeal basis.

Charging costs, not sticker prices, are becoming the real barrier to adoption and public charging’s VAT rate is the elephant in the room.

Every time domestic energy gets cheaper and public charging doesn’t, the UK edges closer to a two-tier EV market: cheap miles for homeowners with driveways, expensive miles for everyone else. That’s not a transition, that’s a postcode lottery

This is, on paper, a household measure. It applies to domestic electricity supplies only, funded for six months, with any decision on extending it beyond March 2027 deferred to the Autumn Budget. Gas isn’t included. Non-domestic electricity isn’t included either.

Where it does touch fleets is at the point where home and business overlap, which is increasingly the norm for electrified fleets. A large proportion of company car and salary sacrifice EV drivers charge at home, and are reimbursed through HMRC’s Advisory Electric Rate.

If home electricity costs fall, even slightly, that feeds into the running cost calculations fleet managers use to make the case for EVs over fuel cards. It won’t transform anyone’s total cost of ownership model. But for high mileage home chargers, it does narrow the gap a little further, at a point when every bit of ground gained helps make the case for adoption in the boardroom.

The bigger story for fleets is what this announcement doesn’t do. It isn’t a response to the things keeping fleet managers up at night: the Electric Vehicle Excise Duty (eVED) due to land in 2028, the rigidity of the ZEV Mandate as it steps up toward 2035, and grid connection delays that continue to hold back depot and workplace charging.

Industry bodies were quick to welcome Burnham personally while making the point, clearly and immediately, that goodwill needs to turn into policy movement on exactly those issues.

Retaining Heidi Alexander at the Department for Transport points to continuity rather than a fundamental reset, at least for now.

There’s a real risk in how this policy lands with the wider public too. If the Government’s flagship ‘electricity is cheaper’ message gets heard, wrongly, as covering business supplies, it could create a false sense that cost pressures on commercial charging infrastructure have eased. They haven’t.

Business electricity pricing, grid capacity and connection lead times remain the constraints that actually determine how fast fleets can electrify, and none of them moved on 21 July.

So what should businesses running or transitioning fleets actually watch? Not the £45 household saving, however welcome. Three things will tell us far more about Burnham’s real position on transport and automotive policy: whether the zero VAT rate is extended or made permanent at the Autumn Budget; whether the eVED consultation response softens the 2028 timeline or confirms it; and whether the Government engages seriously with calls to review the ZEV Mandate’s near term trajectory.

Burnham has talked about reindustrialising Britain and has made automotive manufacturing, the UK’s most valuable goods export, a stated priority. That instinct is the right one. But a domestic energy tax cut, however welcome for household budgets, is not yet evidence of a coherent fleet or transport strategy. It’s a down payment on political goodwill.

Fleets should take the modest saving where it applies, then hold the Government to the harder commitments that will actually shape the pace and cost of electrifying UK fleets.

Similarly, cutting VAT on home electricity is welcome for households, but it quietly widens the gap between the EV ‘haves’ and ‘have-nots’.

Drivers who can charge on a driveway will pay even less to run their car; the millions who rely on public chargers, often renters, flat-residents, and those without off-street parking, will fall further behind.

Jonathan Smart is head of the mobility, logistics and manufacturing sector at Shoosmiths