Ed Miliband hints at cut to VAT on energy bills

Ed Miliband has suggested that the government is considering the possibility of reducing the VAT rate on energy bills.

The energy minister said the Chancellor would not speculate ahead of the November budget.

But when asked whether the government would consider scrapping the 5 per cent rate, he told the BBC the country was “facing a cost of living crisis that we need to address as a government” and that “we are dealing with all those issues”.

The government is under pressure to cut household energy costs and before the election Labor pledged to cut average bills by £300 a year by 2030.

Miliband told the BBC’s Laura Kuenssberg program on Sunday that he stood by his promise, but said that the reason the bills were so high was “our addiction to fossil fuels”.

He added: “There is only one way to reduce bills, and that is to move towards clean electricity, domestic production, clean energy that we have control over, so we are not under the command of oil states and dictators.”

Asked whether the Government was considering scrapping the 5% VAT rate on energy bills in the November Budget, Miliband said: “The whole government, including the Chancellor, understands that we face an affordability crisis in this country.

“We’re facing a cost of living crisis, a long-standing cost of living crisis that we need to address as a government. We’re also facing difficult financial circumstances… so obviously we’re addressing all of those issues.”

A Treasury spokesman said: “We do not comment on speculation.”

According to charity Nesta, removing VAT on domestic energy bills would save the average household £86 a year and cost an estimated £2.5 billion a year to implement.

There was a rapid rise in energy prices in 2021 following Russia’s invasion of Ukraine, and although costs fell, they remained high by historical standards.

Bills for millions of households increased by 2% this month. Below energy regulator Ofgem’s price cap.

This means a household using a typical amount of energy will pay £1,755 a year, an increase of £35 per year on the previous limit.

Earlier this week Chancellor Rachel Reeves told the BBC she was planning “targeted action to tackle cost of living challenges” in next month’s budget.

The BBC understands this could include reducing some of the regulatory duties currently added to energy bills.

Taxes used to fund environmental and social programs such as subsidies for renewable resources, known as “policy costs,” accounted for about 16% of last year’s average electricity bill and 6% of the average gas bill.

Some energy bosses claim green taxes are partly to blame for rising bills, and the government’s independent adviser, the Committee on Climate Change, has long recommended removing policy costs from electricity bills to help people feel the benefits of going net zero.

Asked whether these could be funded through taxes rather than energy bills, Miliband said: “That’s always a decision for the Chancellor, but let’s be honest, we know we’ve inherited really difficult financial circumstances… but we’re certainly looking at those things.”

He argued that the government should invest in “aging electricity infrastructure” but that there should be “a balance between public spending and taxes”.

The cost of residential energy bills has become a major political battleground, with the Conservatives and the UK Reform Party blaming net-zero policies for higher prices.

The Conservatives have said they would repeal the Climate Change Act, which legally requires the UK government to reduce emissions to net zero by 2050, as well as scrap carbon taxes on electricity generation and cut a funding scheme for renewable energy sources.

Shadow energy secretary Claire Coutinho said her party’s plans would cut everyone’s electricity bills by 20%.

“[The public] “They care about climate change but I don’t think they’re willing to pay higher bills and lose jobs to countries abroad,” he told the BBC.

In an interview on the same program, Green Party leader Zack Polanski argued that nationalizing energy companies would help reduce costs for customers.

His party has also proposed a new tax on carbon emissions to raise money to eliminate fossil fuels from the economy and invest in a green transition.

Asked whether businesses would pass these costs on to customers, Polanski denied this and said the tax was “vital in combating the climate crisis.”

“What we need to do is find other ways to support small and local businesses, especially… We know big corporations are destroying our environment, our democracy, and our communities,” he said.

“Of course they can make a profit, but it’s not about squeezing out every profit they can.”