Labour unveils plan to cut energy bills by hundreds of pounds a year

Labour is proposing removing VAT on bills for a year and a windfall tax on North Sea oil and gas producers as part of a package designed to save households hundreds of pounds on their energy costs.

In addition, the £6.6bn plan would see the party expand and increase the warm homes discount for those most at risk.

Labour says the package of support would save most households around £200, while targeted support to those on lower incomes, pensioners and the squeezed middle would mean they save as much as £600.

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Why are your bills going up?

‘Bills can’t be paid on broken promises’

Boris Johnson’s government has come under concerted pressure to act in recent weeks, amid worries over the rising cost of living.


Experts have predicted that rising wholesale costs will result in a 50% rise in bills from April, when the latest change to the energy price cap takes effect.

If this comes to pass, an average household on a supplier’s default tariff would face paying nearly £2,000 a year for gas and electricity, compared to under £1,300 at the moment.

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Speaking to Sky News, the party’s shadow chancellor Rachel Reeves said that if now is not the time to cut VAT on energy bills then “frankly I don’t know when is”.

“The prime minister was the biggest advocate for cutting VAT on gas and electricity bills during the European referendum [in 2016]. But now, when cutting those bills would make more difference than ever, the prime minister says no,” she told Trevor Phillips on Sunday.

“Well, I say that bills can’t be paid on broken promises. The government should honour that commitment that the prime minister made to take VAT off gas and electricity prices. If this isn’t the time to do it, then frankly I don’t know when is.”

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‘Profits before people’

Plan would see warm homes discount expanded

Under Labour’s plans, North Sea oil and gas producers would be required to contribute £1.2bn to fund the measures, through an increase to their corporation tax of 10 percentage points that would last for a year.

A forecast extra £3.1bn in VAT receipts as a result of rising prices would help pay for the proposals, while the projected £2.3bn of additional North Sea oil and gas receipts would make up the rest of the cost.

A total of £3.5bn would be spent on expanding the warm homes discount, increasing it from £140 to £400 a year.

Labour says it would also double the number of eligible households to 9.3 million.

According to the party’s figures, it would cost around £2.5bn to remove VAT from household energy bills for a year from April, which is six months longer than Labour has previously called for.

Mitigating the costs of supplier failure by removing them from customers’ bills would cost £2.6bn, while a contingency fund to provide support to energy intensive firms would cost £600m.

Image: Michael Gove told Sky News it is important to ‘look at a range of options’ when asked about the prospect of cutting VAT on energy bills to help with rising costs

Gove hints warm home discount could be expanded

Speaking to Kay Burley on Monday, Levelling Up Secretary Michael Gove said it was important to “look at a range of options” when asked about the prospect of cutting VAT on energy bills to help with rising costs, adding that there is already support in place.

“I think we should always seek to cut taxes where we can but also it’s important when we are providing support for people that we also target it most on those who need it most,” Mr Gove told Sky News.

Asked if therefore cutting VAT on energy bills was something he would support, Mr Gove said: “Well, you know, in my view, the more we can cut taxes the better, but at this point, I think that the prudent and the responsible thing to do is to recognise that we need to take a balanced approach and a balanced approach means that when we can support, we provide support most for those in the most difficult circumstances.”

Mr Gove reiterated twice that support for energy bills should be “targeted at those most in need”, which suggests ministers could be considering expanding the warm home discount.

The warm home discount scheme is a one-off £140 rebate on energy bills given to two million people in England and Wales – one million people on pension credit and one million families on working age benefits.

The government already plans to expand to around three million people this year – and increase the rebate to £150. Both the number of people eligible and the one-off sum total could be increased further.

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Energy price cap could rise 50%

Lib Dems call for ‘Robin Hood tax’

The Liberal Democrats have also put forward similar plans to Labour in recent weeks.

Sir Ed Davey’s party has called for a “Robin Hood tax” on oil and gas firms, a one-off levy on the profits of companies that the Lib Dems say would raise £5-£7bn and give over seven million households £300 off their bills this year.

The Lib Dem leader has also called on ministers to double the warm home discount and winter fuel allowance.

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Sunak ‘understands’ energy anxiety

‘We recognise people are facing pressures with the cost of living’

A government spokesman said: “The energy price cap is currently insulating millions of consumers from high global gas prices.

“We’ll continue to listen to consumers and businesses on how to manage the costs of energy.

“We recognise people are facing pressures with the cost of living, which is why we are taking action worth more than £4.2bn, and supporting vulnerable households through initiatives such as the £500m household support fund, warm home discount, winter fuel payments and cold weather payments.”