Government urged to axe VAT from household energy bills

Independent price comparison and switching service, uSwitch.com, is calling on the Government to axe the VAT on household energy bills. The demand comes as the number of people rationing their energy use in winter because of cost has soared to over eight in ten (83%), sparking health and quality of life concerns. The move would enable many more to keep warm in the winter and snatch 250,000 households from the grip of fuel poverty.

Household energy is an essential, but unlike water and basic foods it is not zero-rated for VAT. Instead, every household is paying 5% VAT on their energy bills. With the average household energy bill now an eye-watering £1,259 a year, axing the VAT would save households £60 a year on average. Not only is this almost double the £34 a year price cut recently announced by energy suppliers, but when added together it means consumers would see their bills tumble by almost £100 a year.

This could be a lifeline for the 19.5 million or three quarters of households (75%) that have gone without heating at some point this winter to keep their energy costs down. Reducing bills by 5% by axing the VAT could allow them to keep warmer in the winter or to invest in energy efficiency measures which would help to reduce their energy costs even further.

Axing the VAT on household energy bills would cost the Government an estimated £1.6 billion. However it would put money back into people's pockets, benefitting almost every household including the ‘squeezed middle', the ‘working poor' and those in fuel poverty, without the need for means testing. The cost of energy is the top household worry for consumers (90%) ahead of the rising cost of food (77%) and mortgage payments (42%) so axing the VAT and cutting bills by 5% would provide immediate relief.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "Removing VAT from our energy bills would help to alleviate the growing financial pressure that consumers are coming under, enable many more to keep warm in the winter and snatch 250,000 households from the grip of fuel poverty.

"Energy bills and the cost of keeping warm in winter are a major concern for consumers. Cutting bills by 5% by removing VAT would provide immediate relief and would send a clear message to the ‘squeezed middle', the ‘working poor' and the fuel poor that their concerns are not going unheard.

"When added to the recent £34 price cut made by suppliers, the removal of VAT would see household energy bills tumble by almost £100 a year. Consumers could use this money to make their homes more energy efficient which would bring their bills down even more. I would urge the Government to consider this step as it is a win-win for them and for consumers and could potentially kick-start a more energy efficient future."