Rishi Sunak told to use Brexit freedoms to slash £1.5billion from Britons energy bill

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MPs want to reduce the five percent VAT lumped on top of soaring gas bills.

Boris Johnson promised in 2016 that leaving the EU would allow taxes to be cut on household energy and “stands by his commitments”.

Downing Street refused to rule out a change next week but said claims were “speculation”.

“Obviously I wouldn’t be commenting on any future fiscal events,” Mr Johnson’s spokesman said.

“It’s worth saying that VAT is already reduced on fuel bills, a reduced rate of five per cent, but I wouldn’t comment on speculation about tax changes ahead of the Budget.”

Low gas stocks and increased demand have pushed up wholesale gas prices globally by 250 percent since January.

A Treasury official claimed reducing the VAT rate was on the table and would underline the benefits of Brexit and as well as showing the government was listening to people’s concerns about spiralling bills.

But a source close to Mr Sunak dismissed the claims and said there were no plans to announce measures next week.

Huge hikes in wholesale energy prices have forced 12 small energy companies into collapse since September.

The price cap for consumers rose to £1,277 at the beginning of October and is expected to rise again in April.

VAT was imposed on household energy bills in 1993 and EU rules meant it could not be reduced below five percent.

Mr Johnson and Michael Gove promised “fuel bills will be lower” after Brexit during the campaign to leave because it would allow the “unfair and damaging tax” to be scrapped.

Backbench MPs have said cutting the tax would be a Conservative way to bring down bills.

Leading Brexiteer Steve Baker yesterday (MON) backed easing household bills with a VAT cut.

He said: “I’m always for tax cuts whenever feasible.”

Former Tory leader Sir Iain Duncan Smith, Sir Christopher Chope and Robert Halfon have all pushed cuts.

The Energy and Utilities Alliance has called for a temporary cut to “immediately reduce the bills of hard-pressed households”.

But cutting taxes on energy days ahead of the climate change summit the government is hosting in Glasgow would attract criticism from environmentalists.

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

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

Mr Johnson will announce today (TUES) £9.7 billion worth of deals at the Global Investment Summit that will support green growth and create 30,000 jobs.

New projects include offshore wind substructures in Scotland and manufacturing ports in Teesside and Humber, sustainable food systems delivery in Telford and net zero transport in Coventry.

Last night, Mr Johnson said: “The world’s top investors have seen the massive potential in the UK for growth and innovation in the industries of the future. The fantastic £9.7 billion of new investment we have secured today will power our economic recovery, creating thousands of jobs and helping to level up across the country.

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Mr Sunak has limited room for manoeuvre when he delivers the budget on October 27 after the pandemic left the country with a £400 billion bill.

High energy prices and rising wages are expected to push Inflation over four per cent by the end of the year.

But experts warned against increasing interest rates from 0.1 percent to stop the figure spiralling.

David Blanchflower, a former Bank of England adviser, said the move would be a “disaster” and “’foolish” because the pressures on inflation are “terribly temporary”.

The package of 18 deals will support growth in vital sectors such as wind and hydrogen energy, sustainable homes and carbon capture and storage, cementing the UK’s climate leadership for COP26 and beyond. 

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