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Energy secretary Ed Miliband has given the strongest hint yet that the chancellor could cut VAT from household energy bills at next monthโs Budget, saying the government must take steps to tackle the cost of living crisis.
Miliband said that chancellor Rachel Reeves โunderstands that we face an affordability crisis in this countryโ, even as she prepares to raise other taxes to plug a fiscal gap.
On Sunday, the minister was asked directly if the government was considering โscrappingโ 5 per cent VAT on energy bills at the November Budget, and told the BBC: โThe whole of the government, including the chancellor, understands that we face an affordabilityย crisisย in this country.
โWe face a cost of living crisis, a long-standing cost of living crisis that we need to address as a government.โ
His comments will fuel speculation that Reeves is planning a select number of giveaways to soften the impact of tax rises elsewhere, as the chancellor looks to plug a fiscal hole estimated at ยฃ20bn-ยฃ30bn.
They come as Labour faces pressure over rising energy bills after pledging to cut costs for consumers, with energy bosses sounding a warning over the increasing cost of electricity in the UK this week.
Miliband acknowledged the governmentโs โdifficult fiscal circumstancesโ but said it was โlooking at all of these issuesโ including ways to lower energy costs, which have become a lightning rod for criticism of higher inflation.
As part of his broader clean energy push, Miliband on Sunday outlined plans to help train additional workers in the sector, which he claims will create 400,000 additional jobs by 2030, including planning five new โtechnical excellence collegesโ.
The so-called Clean Energy Jobs Plan includes 31 โpriorityโ occupations including plumbers, electricians and welders, with the government billing it as potentially opening up higher paying jobs for younger people, former oil and gas workers and military veterans throughout the UK.
Reeves has, however, acknowledged in recent days that public spending will have to be cut in her November Budget alongside further tax rises, promising that โthe numbers will always add up with me as chancellorโ.
But Labour, which has slumped to just 20 per cent in the latest YouGov poll, is aware of the need to provide some relief for struggling families as it tries to ward off the threat from Nigel Farageโs populist Reform UK party.
The so-called energy price cap, which governs the majority of householdโs gas and electricity costs, has risen to ยฃ1,755 per year for a home with average usage from about ยฃ1,200 in 2019, prior to the pandemic and Russiaโs disruption of energy supplies.
Adjusted for inflation prices are about ยฃ200 a year higher for the average household than in 2019, though larger homes with higher usage can face substantially higher bills.
VAT, which is normally charged at 20 per cent, is already applied at a reduced rate of 5 per cent on household gas and electricity bills, including on standing charges for connection to the grid.
Scrapping it would save a household with average usage about ยฃ86 a year, according to the charity Nesta, and cost the government about ยฃ2.5bn a year.
Last month Nestaโs Marcus Shepheard questioned whether a VAT cut was the best way to lower energy bills, arguing it was poorly targeted โwith most of the absolute benefit flowing to the wealthiest householdsโ.
Shepheard suggested alternatives such as focusing the VAT cut only on electricity rather than gas or using funds for debt forgiveness for those still paying off large bills accrued at the peak of the energy crisis.
The Treasury said: โWe do not comment on speculation.โ
