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Rishi Sunak pledges to scrap VAT on energy bills

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Written by: Emma Lunn
27/07/2022
The move marks a major tax U-turn from the former chancellor as the Conservative leadership contest hots up.

Sunak has previously said that he wouldn’t make any immediate tax cuts if he became prime minister.

But he now says he would scrap the 5% VAT rate on household energy bills if prices continue to rise later this year, claiming that the measure would save the average household £160.

Sunak said the move would help people with rising living costs. But the campaign team for rival Liz Truss described the move as a “screeching U-turn”. Sunak has repeatedly said he wants to hold off on immediate tax cuts, criticising Truss’ plans to cut taxes.

Sunak argued against a VAT cut on energy when he was chancellor, saying the policy “would disproportionately benefit wealthier households”.

Sunak’s latest announcement comes after warnings that the energy price cap could rise well above £3,000.

According to Sky News, the VAT cut would be subject to energy regulator Ofgem confirming the price cap will rise to £3,000. It would take effect from 1 October and last for 12 months.

Richard Neudegg, director of regulation at Uswitch.com, said: “Temporarily cutting VAT from energy bills is a reasonable idea to put on the table, and could be part of the solution. But it won’t be enough by itself in the face of the price rises that are to be revealed in less than a month.

“If the average bill were to hit the predicted £3,244 from October, removing the 5% VAT would save £154 a year. This potential saving looks dwarfed by the fact that bills this winter are set to be around £2,000 higher on average than last year and around £500 more than was predicted when the government set out its support package in May.

“What really matters is what specific financial support will be provided to people on their bills, particularly the vulnerable, rather than the delivery mechanism.

“It is time for both Conservative leadership candidates to show they can get the job done for anxious households. We call on both Rishi Sunak and Liz Truss to work together as a matter of urgency so that clear, concrete support is laid out at the point that the new price cap level is announced on 26 August.

“Above all else, households need clarity as soon as possible to help them plan for the most expensive winter in living memory.”

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