Andy Burnham's £45 VAT cut on energy bills, announced on Tuesday morning, could be increased to £255 for some households. Labour Party Prime Minister Mr Burnham has confirmed that electricity bills will be VAT-free from 1 October.
Policy details and savings
The policy is projected to cut £45 off a typical home's annual bill, based on Ofgem's current price cap. Richard Neudegg, director of regulation at Uswitch.com, said: “Removing 5 per cent VAT on electricity bills from 1 October will be warmly welcomed by households as they head into the colder months, when energy use rises sharply. This would be £45 off a typical home's annual bill based on the current electricity price cap.”
Mr Neudegg added: “There is continued pressure on wholesale prices, driven by the situation in the Middle East, meaning it is likely that the October 1 price cap will increase. Some supplier predictions suggest the next price cap could rise 5 per cent from October for a household with both gas and electricity, so this tax change could take the sting out of a potential increase.”
Potential for greater savings
“The cheapest deals are currently undercutting standard rates by £210 for the average household. Doing so on top of this VAT change could leave households considerably better off over the winter.” Taken together, the £45 VAT reduction could be increased to £210 savings for some, if they were to act now and fix on the cheapest deals.
Simon Francis, coordinator of the End Fuel Poverty Coalition, said: “Removing VAT from electricity bills is a positive statement of intent by the new administration. But it does not address the scale of what households are facing, with millions still left paying an unaffordable share of their income on energy and record levels of energy debt built up over successive winters of high bills.”
Calls for further action
“The Prime Minister’s next move must be to go even further on bringing down the cost of energy and bringing in increased levels of targeted support for those who need it most: an enhanced Warm Home Discount, reformed Cold Weather Payments and an energy debt relief scheme.” He added: “This breathing space is also not a cure. The only way to bring bills down for good is to change how they are set. That means breaking the link between gas and electricity prices, tackling excess profits in the energy industry and ending our exposure to volatile fossil fuel markets through home-grown renewables and more energy efficient homes.”
