BBC Money Box star Paul Lewis has criticised Prime Minister Andy Burnham's decision to cut VAT on domestic electricity bills, describing the policy as 'silly' and highlighting that the savings for households are minimal. The VAT reduction from 5% to 0% is intended to lower energy costs, but Lewis argues the actual benefit to consumers is far less than claimed.
Minimal savings from kettle usage
Paul Lewis, a personal finance expert, calculated that scrapping the 5% VAT on electricity bills would cut prices by 4.76%. This translates to a reduction of about £10 a year off the standing charge and approximately 1.25p off each unit of electricity used. For a typical household boiling a kettle three times a day, the annual saving would be around £3.64, and probably less. 'Put another way, scrapping 5% VAT on domestic electricity bills cutting prices by 4.76% will knock about £10 a year off the standing charge and about 1.25p off each unit of electricity used. Boiling a kettle 3x a day for a year may save users maybe £3.64 a year (probably less),' Lewis said.
Temporary measure and potential pitfalls
Lewis further noted that the VAT cut is only scheduled to last for six months, though it will be difficult to reinstate once removed. The widely quoted £45 saving is calculated over a full year, but the policy as promised and paid for only covers six months. 'It gets sillier. The VAT cut is only scheduled to last (and costed) for six months, though it will be hard to put back once taken away. But the much quoted (and exaggerated) £45 saving is over a year! In fact as promised and paid for it will in fact only last for six months,' he explained. He also warned that energy suppliers might adjust fixed-rate offers to retain some or all of the cut, as has happened with previous VAT reductions on tampons, hospitality during Covid, and digital newspapers.
Public reaction and broader concerns
Social media users responded to Lewis's comments with mixed views. Neil Hayes suggested the cut is likely costed until the next budget in autumn, but noted that increased defence spending plans are needed. Honest Phil argued that while the saving is minimal, it is still something and helps cap inflation, though it may be offset by a rise in the energy price cap in autumn. Another user wrote, 'And it does nothing for your gas bill going into the winter, so the higher cost of gas will wipe out the £45 saving. It is a totally shallow gesture which will be funded by the taxpayer anyway, so you pay one way or another.' Mike Edwards added that cutting VAT does not address the core issue driving electricity prices upward: net zero subsidies, carbon taxes, and grid expansion.
