Labour is calling for a VAT cut on domestic energy bills to help tackle a looming cost of living crisis.
Rachel Reeves, the shadow chancellor, said Rishi Sunak should cut the 5 per cent charge for six months from November 1, which Labour said would “see people through the winter months”.
Mr Sunak had been said to have been considering such a move as part of this week’s budget, but appeared to have ruled it out on Saturday.
A Treasury source said: “This would be poorly targeted, subsidising thousands of well-off households and not providing enough help to those who most need it.
“Instead, the Government has set up the Household Support Fund, worth £500 million, for those in low-income households to access as and when they need help for food or energy bills.”
Bid to address rising household costs
Ms Reeves said temporarily removing VAT from domestic energy bills would help to address “a cost of living crisis which has seen energy bills soar, food costs increase and the weekly budget stretched”.
She added: “We need a sustainable and ambitious approach to energy, which is why Labour would also ramp up ambition with our plan to retrofit 19 million homes and make our energy supply chain more secure.
“Conservative complacency is making the cost of living crisis worse and storing up long-term problems, with working people paying the price.”
Labour said it would have funded the tax cut by using “higher than expected VAT receipts accrued since the start of the financial year”.
Plea to use Brexit freedoms to control VAT rates
Senior Conservatives have also called for the change.
Robert Halfon, the Harlow MP – known for his successful campaign to keep fuel duty frozen – said it would be a good use of Brexit freedoms to set VAT rates.
“A real advantage of leaving the EU is that we now control VAT rates, which wasn’t possible in the past,” he said last month.
The freedom to scrap VAT from energy bills was cited during the Brexit referendum campaign as one of the upsides of leaving the EU. Brussels rules stipulated that member states could not reduce VAT on domestic energy below its current rate of 5 per cent.
During the referendum campaign, Boris Johnson signed a statement saying: “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 politicians can do nothing.”
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