Cut VAT on energy bills as prices surge, Sunak urged
CHANCELLOR Rishi Sunak has been urged to give the nation a £1.5billion energy bill reduction, by using Brexit freedoms to cut taxes.
MPs want to slash the 5 per cent VAT lumped on top of the soaring gas bills Britons are struggling with.
In 2016, Boris Johnson promised leaving the EU would allow taxes to be cut on household energy and said he “stands by his commitments”.
Downing Street refused to rule out a change next week – but said any reports were just “speculation”.
Mr Johnson’s spokesman said: “Obviously I wouldn’t be commenting on any future fiscal events.
“VAT is already reduced on fuel bills, a reduced rate of 5 per cent, but I wouldn’t comment on speculation about tax changes ahead of the Budget.”
A Treasury official claimed reducing the VAT rate was on the table and would underline the benefits of Brexit and as well as addressing people’s concerns about spiralling bills.
But a source close to Mr Sunak
EU rules meant VAT on energy bills could not fall below 5% – before Brexit
denied there are plans to announce measures next week.
Leading Brexiteer Steve Baker yesterday backed easing household bills with a VAT cut.
He said: “I’m always for tax cuts whenever feasible.”
Former Tory leader Sir Iain Duncan Smith, Sir Christopher Chope and Robert Halfon have all pushed for cuts as well.
Low gas stocks and increased demand have pushed up wholesale gas prices globally by an incredible 250 per cent since January.
The hikes have forced 13 small energy companies to go out of business since September.
Meanwhile, the price cap for consumers rose to £1,277 at the beginning of October and is expected to rise again in April.
VAT was imposed on household energy bills in 1993. EU rules meant it could not fall below 5 per cent – before Brexit.
Mr Johnson and Michael Gove promised “fuel bills will be lower” after Brexit, saying that leaving the EU would allow the “unfair and damaging tax” to be scrapped.
Backbench MPs have said cutting the tax would be a Conservative way to bring down bills while The Energy and Utilities Alliance has called for a temporary cut to “immediately reduce the bills of hardpressed households”.
But reducing taxes on energy, days ahead of the COP26 climate change summit the Government is hosting in Glasgow, may draw criticism from environmentalists. Paul Johnson, director of the Institute for Fiscal Studies think-tank, said cutting VAT would “increase the effective subsidy we provide for burning gas”. He added: “It would also cost over £1.5billion a year, with most of the benefit accruing to higher-income households.”
Pushing ahead with his mission to make the UK’s economy more green, the PM will today announce £9.7billion worth of deals at the Global Investment Summit to support growth and create 30,000 jobs.
The 18 projects include offshore wind substructures in Scotland, manufacturing ports in Teesside and Humber, sustainable food systems delivery in Telford and net-zero transport in Coventry.
Last night Mr Johnson said: “The world’s top investors have seen the massive potential in the UK for growth and innovation in the industries of the future. This will power our economic recovery, creating thousands of jobs and helping to level up across the country.”
However, his colleague Mr Sunak has limited room for manoeuvre when he delivers the Budget on October 27 after the pandemic left the country with a £400billion bill.
Rocketing energy prices and rising wages are expected to push inflation over 4 per cent before next year.
But experts have warned against increasing interest rates from 0.1 per cent to stop the figure spiralling.
Former Bank of England adviser David Blanchflower said this would be a “disaster” as the pressures on inflation are “terribly temporary”.