VAT on energy bills: what Boris Johnson said about cutting 5% rate and how much it would save household costs?

Boris Johnson described VAT as a “blunt instrument” and suggested scrapping it is not effective in helping those under pressure

Boris Johnson has dismissed calls to scrap the 5% VAT rate on energy bills.

This comes despite the Prime Minister’s promise during the 2016 Brexit referendum Vote Leave campaign to cut VAT from domestic bills.

Mr Johnson now suggests scrapping VAT will not help those under pressure and ensured ministers have not ruled out more assistance for households facing big energy charge increases when the price cap is reviewed in April.

The PM confirmed that leaving the EU now means Britain has the freedom to set its own VAT rates.

Speaking at a Downing Street press conference on Tuesday (4 January), he said: “It’s slightly paradoxical that this is now being campaigned for by people who actually wanted to remain in the EU and still do when it would be impossible to deliver within the EU.

“The argument is that it’s a bit of a blunt instrument.

“And the difficulty is that you end up also cutting fuel bills for a lot of people who perhaps don’t need the support in quite the direct way that we need to give it.”

However, he insisted “not ruling out further measures” adding that the Chancellor “is very, very mindful of the increase in energy prices and the effect of increasing energy prices on people up and down this country, and we are going to do what we can to help.”

What was Boris Johnson’s promise on VAT during Brexit?

As part of the 2016 Brexit referendum leave campaign, Boris Johnson alongside Michael Gove and former Labour MP Gisela Stuart insisted leaving the EU would allow Britain to cut the VAT tax.

They said: “In 1993, VAT on household energy bills was imposed. This makes gas and electricity much more expensive. EU rules mean we cannot take VAT off those bills.”

“The least wealthy are hit particularly hard. The poorest households spend three times more of their income on household energy bills than the richest households spend,” they added.

“As long as we are in the EU, we are not allowed to cut this tax.

“When we Vote Leave, we will be able to scrap this unfair and damaging tax. It isn’t right that unelected bureaucrats in Brussels impose taxes on the poorest and elected British politicians can do nothing.”

How much would slashing VAT save households on bills?

The government could cut each household energy bill by £90 through slashing taxes or VAT, Emma Pinchbeck, trade body Energy UK’s chief executive, said last month.

Bills could also be cut further by £190 if the government brought forward proposals on removing policy costs, Ms Pinchbeck said.

Scrapping VAT would save £60 on a typical household annual bill now, but could be worth £100 a year if the price cap rises in April as expected.

How will energy bills be affected in April?

Energy bills could increase by more than 50% in April for millions across the country that are on a standard tariff.

The energy price cap is expected to increase from the current £1,277, a record in itself, to around £2,000 - analysts and trade body Energy UK predict.

The new price cap will come into force on 1 April.

Money Saving Expert, Martin Lewis, has warned households “what’s coming in April is a seismic hit for fuel bills which is going to be astronomical”.

He said: “They (the government) have to sort this now because if we leave this before it’s too late it will be a disaster.”

What have government ministers said?

The Prime Minister’s official spokesman ensured ministers would consider any proposals, but warned reasons for the energy price increases were global.

The government also defended the use of green levies on bills to fund renewable energy.

The spokesman said: “The exposure to volatile global gas prices underscores the importance of our plan to build a strong, homegrown renewable energy sector to further reduce our reliance on fossil fuels.

“It’s right that we invest in this and ultimately bring down the cost of renewable energy sources while supporting lower-income and vulnerable households with their energy bills.”

What has Labour said?

Rachel Reeves, Shadow chancellor, condemned Boris Johnson for promising “not once but three times to cut VAT on household energy bills during and after the Brexit referendum campaign.

She said: “Yet now he’s happy to go back on his word, and is trying to muddy the waters on a change that would help ease the burden on households facing soaring energy bills.

“It’s one broken promise after another from a Prime Minister distracted by his own scandal and incompetence.

“Labour would scrap VAT from home energy bills this winter to help households facing growing costs.”

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