Rishi Sunak may cut 5% VAT on home energy bills as Brits face winter cost crisis

Chancellor Rishi Sunak could ‘tick two boxes’ by cutting the 5% rate while resisting pressure to splash taxpayers’ cash elsewhere, as it could allow Boris Johnson to hail a Brexit benefit

Sunak is reportedly considering the move – but some experts say it might not be the right one

Rishi Sunak could slash VAT on household energy bills to help struggling families through the winter cost of living crisis.

The Chancellor is reportedly considering cutting the 5% rate even though he has resisted pressure to splash taxpayers’ cash elsewhere.

Treasury officials played down the likelihood of Mr Sunak announcing a cut amid concerns he might set a precedent with the annual cost reaching £1.5bn.

Cutting taxes on energy ahead of the UN COP26 climate summit in Glasgow – when the Government will call on other wealthy nations to do more – could also be controversial.

However, the Tories are thought to be looking for measures which could also allow Boris Johnson to hail a Brexit benefit, as VAT rates on domestic fuel are set centrally within the EU.

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One Treasury official told the Financial Times: “It would tick two boxes – it reminds people of the benefits of Brexit and shows you’re listening to people.”

But Paul Johnson, director of the Institute for Fiscal Studies think-tank, said the move would “increase the effective subsidy we provide for burning gas”.

He added: “It would also cost over £1.5bn a year, with most of the benefit accruing to higher-income households.”

Rishi Sunak may cut 5% VAT on home energy bills as Brits face winter cost crisis
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Jonny Marshall, economist at the Resolution Foundation, said a VAT cut “would not be targeted and would be quite expensive”.

He said that having failed to reverse the £20 universal credit cut Mr Sunak could look at the warm homes discount and cold weather payments to help poorer families through the winter.

Mr Sunak is also said to be looking at plans for an online sales tax to level the playing field between tech giants and the high street.

The Chancellor is reported to be considering the so-called ‘Amazon tax’ after disappointing businesses by delaying a radical overhaul of the business rates system.

Treasury officials have sped up work on the new online sales tax in the past few weeks, according to reports, with a consultation likely to be launched before big tax hikes.

There are likely to be few details in next week’s Budget with a bit announcement expected to be held off until the Spring.

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