No VAT cut on the energy bills of households in the budget

VAT on household energy bills will not be cut on Wednesday in the Chancellor’s budget, despite calls to help families grapple with the surge in prices.

Labor is calling for the rate to be reduced from 5% to zero for the next six months to help families get through a “hard winter”.

But Whitehall sources told the BBC that such a move would be poorly targeted.

They say low-income families can be better helped through other programs.

Rising energy bills have alarmed households and political leaders amid warnings from the energy regulator, Ofgem, of further “significant increases” next spring.

The price cap, which rose earlier this month for households in England, Scotland and Wales, is expected to be revised again next April, with the expectation that it will rise further.

When the maximum price was raised on 1 October, some 15 million households faced a 12% increase in energy bills.

Those with standard tariffs, with typical household energy consumption levels, have seen an increase of £ 139 – from £ 1,138 to £ 1,277 per year.

Customers of prepaid meters with average power consumption saw an increase of £ 153.

Even if wholesale gas prices were to drop significantly by now, the additional costs that suppliers have had to incur in the past couple of months mean a sharp rise in household bills in April is inevitable.

Shadow Chancellor Rachel Reeves, who spoke on the BBC’s Andrew Marr Show last Sunday, said many families are facing a “harsh winter” and were worried about putting food on the table and heating their homes because prices were going up. “on the whole” .

He said: “When we pay our gas and electricity bills, 5% of that money automatically goes to the taxman.

“There is something very simple that the government could do. It would be immediate and it would automatically be felt on people’s bills next month, which is to reduce the VAT rate from 5% to 0%.”

He said he had looked at VAT receipts and had come in at over £ 2bn more than expected due to rising prices, giving the chancellor some leeway to take action.

But Chancellor Rishi Sunak, who was on the same program, said there was “no magic wand” to make the problems go away.

He said there were several factors contributing to high inflation, such as pressure on global supply chains when economies reopened after Covid and soaring energy prices.