Plans to cut VAT on energy bills would not be sufficient to help vulnerable families facing the threat of soaring prices over the winter, campaigners have warned.
On Monday, it was reported that Rishi Sunak is considering cutting VAT on household energy bills from the existing 5% rate amid growing pressure from Tory MPs concerned about the prospect of a cost-of-living crisis.
According to the Financial Times, the Conservative chancellor may make the cut when he announces the Budget on 27 October.
It is suggested it may be called a "Brexit dividend", because EU rules prevent VAT on domestic energy from being lower than 5%, and reducing energy bills post-Brexit was one of Boris Johnson's pledges during the "Vote Leave" campaign.
However, the Resolution Foundation – a leading British think tank focused on low-income households has called for "more targeted support", instead of simple VAT cuts, for those most at risk of fuel poverty.
That support could, it says, come in the form of uprating the Warm Homes Discount in line with rising bills or widening the eligibility for the Cold Weather Payment, a £25 provision to means-tested households in receipt of certain benefits when temperatures fall below 0C for seven consecutive days.
But it added: "Neither of these measures would be as effective as simply maintaining the £20 a week uplift to Universal Credit."
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Up to 800,000 families could be thrown into poverty this month following the cut to the £20 uplift to Universal Credit, introduced in March 2020.
The cut has been widely condemned by charities, Labour, and even some Tory MPs – with three former Conservative work and pensions secretaries calling for it to be cancelled.
One Tory MP warned that the UK is at risk of heading into a "winter of discontent" amid soaring energy bills coinciding with benefit cuts, inflation, and the end of furlough.
Around a dozen British energy firms have already gone bust this year due to the crisis, and fuel poverty organisations have warned of the devastating impact soaring costs will have low-income households.
The FT reports that Sunak remains wary about the suggested cut to VAT on energy, which could cost up to £1.5bn per year.
This is not entirely surprising: his decision to increase national insurance to provide funding for social care, not to mention the Universal Credit cut, has also been criticised for hitting the purses of those on low incomes hardest.
The Department of Business, Energy, and Industrial strategy (BEIS) has not indicated that any changes to current support such as those proposed by the Resolution Foundation are on the cards.
A BEIS spokesperson said: “Protecting consumers is our top priority, which is why our Energy Price Cap will remain in place.
"We are also supporting vulnerable and low-income households further through initiatives such as the £500m Household Support Fund, Warm Home Discount, Winter Fuel Payments and Cold Weather Payments,"
“Domestic fuels such as gas and electricity are already subject to the reduced rate of 5% of VAT.
“We do not comment on speculation around tax changes outside of Budget.”
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