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Reduction in VAT for home energy bills

Volume 692: debated on Monday 19 April 2021

The petition of residents of the constituency of Glasgow East,

Declares that there is widespread public support and acknowledgement of the need for countries across the UK to lockdown to suppress the spread of coronavirus; notes that in doing so many constituents are experiencing greatly increased energy costs as a result of staying at home; and declares that people should not have to bare unfairly the financial burden of complying with stay-at-home guidance in the height of a pandemic and during cold winter weather when energy bills are typically higher.

The petitioners therefore request that the House of Commons urge the Government to bring forward measures to temporarily reduce VAT liability for home energy bills.

And the petitioners remain, etc.—[Presented by David Linden, Official Report, 19 January 2021; Vol. 687, c. 918.]


Observations from The Financial Secretary to the Treasury (Jesse Norman):

The Government thank the hon. Member for Glasgow East (David Linden) for submitting the petition on behalf of his constituents about temporarily reducing VAT liability for home energy bills.

The Government are committed to tackling fuel poverty. Energy efficiency is the most sustainable long term solution to fuel poverty.

The current Energy Company Obligation (ECO) has installed 2.8 million energy efficiency and heat measures in over 2.1 million homes, saving households up to £300 each on their energy bills. The Government have announced that ECO will be extended to 2026 and increase in value from £640 million to £1 billion a year.

While the Government are working to upgrade the energy efficiency of homes, the Warm Home Discount supports over two million low income households each year in the form of £140 rebates taken directly off electricity bills. The Government are expanding the Warm Home Discount to around three million homes to provide £150 a year off electricity bills, representing £1.9 billion of extra support for households in fuel poverty.

In recognition of the fact that families should not have to bear all of the VAT costs they incur to meet their needs, domestic energy such as gas and electricity is already subject to the reduced rate of 5% of VAT.

Going further would impose significant additional pressure on the public finances, to which VAT makes a significant contribution. VAT raised around £130 billion in 2019-20, and helps to fund key spending priorities including on health, schools, and defence. Any loss in tax revenue would have to be balanced by a reduction in public spending, increased borrowing or increased taxation elsewhere.

Moreover, this request to lower the rate further should be viewed in the context of over £50 billion of requests for relief from VAT received since the EU referendum. Again, such costs would have to be balanced by increased taxes elsewhere, or reductions in Government spending.

Therefore, while all taxes are kept under review, there are currently no plans to change the VAT treatment of domestic energy.

To keep costs down for families, the Government have extended the energy price cap until the end of 2021, ensuring 15 million British households are still protected from being overcharged, saving them between £75 and £100 a year each on dual fuel bills.

Under plans announced as part of the Energy White Paper, the Government will be introducing new measures to prevent companies from taking customers’ loyalty for granted. It will be introducing opt-in switching, where consumers are offered a simple method of switching to a cheaper tariff if their initial contract has ended, and they are testing opt-out switching, where, unless they choose not to be, consumers are automatically switched to a competitive new contract if their initial contract has ended.

Winter Fuel Payments provide every pensioner household across Britain with between £100 and £300 towards their fuel bills over the winter, and Cold Weather Payments provide vulnerable households on qualifying benefits with financial support when the weather has been, or is forecasted to be, unusually cold. A sum of £25 is available for eligible households for each seven day period of very cold weather between 1 November and 31 March.