The government is exploring the option of reducing the VAT rate on energy bills, according to Energy Secretary Ed Miliband. He indicated that while he would not speculate on the outcome of the upcoming chancellor’s Budget in November, the government is aware of the ongoing cost-of-living crisis. Miliband emphasized that all related issues are being considered.
Under increasing pressure to alleviate household energy costs, the government faces a commitment made by Labour to decrease average energy bills by £300 annually by 2030. Miliband stated on the BBC’s Sunday with Laura Kuenssberg programme that high bills are largely due to reliance on fossil fuels. He argued for a transition to cleaner, domestic energy sources to reduce dependence on external suppliers.
When asked about the possibility of scrapping the 5% VAT on energy bills in the November Budget, Miliband mentioned the government’s understanding of the affordability crisis. He acknowledged the challenging fiscal circumstances but assured that the administration is assessing various related issues. According to the charity Nesta, removing VAT on energy bills could save households about £86 annually, at a cost of approximately £2.5 billion to implement.
Energy prices spiked in 2021 following Russia’s invasion of Ukraine, and despite some reduction, they remain historically high. Recently, bills rose by 2% for many households, now averaging £1,755 annually, an increase of £35 from the prior cap.
Chancellor Rachel Reeves has announced plans for targeted action to address cost-of-living challenges in her forthcoming Budget, which may include reductions in regulatory levies that contribute to energy bills. These levies, meant to fund environmental and social schemes, accounted for around 16% of electricity bills last year.
The discussion around energy costs has become politically contentious, with some parties attributing rising prices to net-zero policies. The Conservative party has suggested eliminating the Climate Change Act and related taxes, while the Green Party leader proposed nationalizing energy companies to cut customer costs. As the government considers its next steps, the debate continues regarding the balance between energy pricing, environmental commitments, and economic impacts.
Source: https://www.bbc.com/news/articles/cdjrg4vylzko?at_medium=RSS&at_campaign=rss