VAT on household energy bills will not be cut within the Chancellor’s Budget on Wednesday, despite many calls to help the families that are struggling with soaring energy prices
The Labour Party has been calling for the VAT rate on energy to be slashed from 5% to zero for the next six months to help households get through a “tough winter”.
But Whitehall sources have told the BBC such a move would be poorly targeted.
They say lower income households can be better helped through other schemes.
Rising energy bills have been causing alarm to families and political leaders amid warnings from the energy regulator, Ofgem, of more “significant rises” next spring.
This comes after a living wage increase from £8.91 to £9.50 an hour is to be announced in Wednesday’s budget. By lifting the national living wage to £9.50 an hour, this brings it to the real living costs of those living outside of London, according to an independent campaign group.
The cap on prices, which went up earlier this month for households in England, Scotland and Wales, is due to be reviewed again next April, with the expectation that it will climb further.
When the price cap was increased on the 1st of October, about 15 million households faced a 12% rise in energy bills.
Those on standard tariffs, with typical UK household levels of energy use, saw an increase of £139, from £1,138 up to £1,277 a year.
Prepayment meter customers with average energy use saw an increase of £153.
Even if wholesale gas prices in the country were to drop significantly from now, the extra costs that energy suppliers have had to shoulder in the last couple of months, would mean a steep rise in household bills in the month of April is inevitable.
Shadow chancellor Rachel Reeves, who was speaking on the BBC’s Andrew Marr Show last Sunday, said that many households in the country were facing a “tough winter”, and were worried about putting food on the table and heating their homes because prices were going up “on everything”.
She said: “When we pay our gas and electricity bills, 5% of that money goes automatically to the taxman.
“There’s something very simple the government could do. It would be immediate and it would be felt automatically on people’s bills next month – and that is to cut that rate of VAT from 5% to 0%.”
This comes after the price of unleaded has rocketed from 114.5p a year ago, adding £15 to the cost of filling up a 55-litre family car. Petrol prices within the UK have hit a record high in what the RAC has described as a “truly dark day for drivers”.
She said that she had been looking at VAT receipts and they had come in more than £2bn higher than forecast as a result of rising prices, giving the chancellor some wriggle room to act.
But Chancellor Rishi Sunak, who was on the same programme, said there was “no magic wand” to make the problems disappear.
He said several factors contributed to high inflation, such as pressure on global supply chains as economies have reopened after COVID-19 and soaring energy prices.
