Slashing VAT would not necessarily cut fuel bills, says Downing Street

The Prime Minister said in 2016 that leaving the EU would make ministers ‘able to scrap this unfair and damaging tax’.

Energy bills are set to go up by more than half from April for millions of households (Gareth Fuller/PA) (PA Wire)

Downing Street has said that removing VAT from domestic fuel bills would not necessarily cut costs for households who are facing major hikes in their energy bills from April.

The Prime Minister’s official spokesperson said that the Government will consider any proposals, but warned that the reasons for the rise in energy prices is global.

The promise to cut VAT from domestic fuel bills had been made during the 2016 Brexit campaign by Vote Leave, which Prime Minister Boris Johnson was a member of.

VAT on energy bills is already only set at 5% – much lower than the tax on most other goods and services.

“Obviously we will consider any policy proposals but going further would not guarantee prices fall, given that price rises are driven by a number of factors which we are seeing played out worldwide,” a spokesperson said on Tuesday.

Number 10 also defended the use of green levies on bills to fund renewable energy.

“The exposure to volatile global gas prices underscores the importance of our plan to build a strong, homegrown renewable energy sector to further reduce our reliance on fossil fuels,” the spokesman said.

“It’s right that we invest in this and ultimately bring down the cost of renewable energy sources while supporting lower-income and vulnerable households with their energy bills.”

According to some predictions, energy bills could be hiked by more than 50% in April for millions of households that are on a standard tariff.

In April the price cap, which limits the amounts that suppliers can charge, will rise. It is currently at an already record-beating £1,277. But analysts at Investec think this could go up to £1,995 in April.

The rises are due to a major spike in global gas prices, which have been pushed up by high demand around the world.

Trade body Energy UK’s chief executive said last month that the Government could cut each household bill by £90 by slashing taxes or VAT.

Meanwhile bills could be cut by a further £190 by bringing forward proposals on removing policy costs, Emma Pinchbeck said.

In 2016, Boris Johnson, Michael Gove and former Labour MP Gisela Stuart now Baroness Stuart of Edgbaston, said: “In 1993, VAT on household energy bills was imposed. This makes gas and electricity much more expensive. EU rules mean we cannot take VAT off those bills.

“The least wealthy are hit particularly hard. The poorest households spend three times more of their income on household energy bills than the richest households spend. As long as we are in the EU, we are not allowed to cut this tax.

“When we Vote Leave, we will be able to scrap this unfair and damaging tax. It isn’t right that unelected bureaucrats in Brussels impose taxes on the poorest and elected British politicians can do nothing.”

According to HMRC figures, cutting VAT on fuel bills would have cost the Government around £1.7 billion last year.