Rishi Sunak is in line for a £1billion VAT ‘windfall’ as energy prices soar – with pressure mounting after it emerged the energy price cap will rise by £700 in April

  • Soaring household energy bills could land the Treasury a £1billion ‘windfall’ 
  • Money would come from extra tax if energy price cap rises by £700 in April
  • But Treasury is under pressure to scrap for VAT on domestic fuel amid ‘cost of living catastrophe’

Pressure mounted last night for VAT on domestic fuel to be scrapped after it emerged that soaring energy bills could land the Treasury a £1billion ‘windfall’.

This is the total the country’s 30million households would pay in extra tax on bills if the energy price cap rises by £700 in April, as analysts have predicted.

The Prime Minister is expected to hold talks with Rishi Sunak next week amid fears that energy bills could spark a cost-of- living crisis.

A Government source said ministers were agreed that ‘doing nothing is not an option’ but had yet to finalise what help would be offered.

Pressure mounted on the Treasury last night for VAT on domestic fuel to be scrapped after it emerged that soaring energy bills could land a £1billion ‘windfall’

Craig Mackinlay, chairman of the Net Zero Scrutiny Group of Conservative MPs, said it would be ‘disastrous’ for the Government to profit from the crisis, adding: ‘The Chancellor simply cannot be seen to accept a windfall like that – there is no justification for it.’

Reports have suggested ministers are looking at focusing support on the poorest, possibly through an expansion of the means-tested Warm Homes Discount Scheme.

But Mr Mackinlay said the scale of the increases meant many ‘just about managing’ families would also need help, preferably through scrapping the 5 per cent VAT rate or suspending the green levies that make up 13 per cent of a typical bill.

The Treasury rejected the idea it would benefit from rising energy prices as bigger fuel bills would leave people with less money to spend on goods that attract higher rates of VAT 

The owners of British Gas have called for green levies to be removed from energy bills to help struggling customers.

The plea comes amid pressure put on Boris Johnson from his own backbenchers and the Opposition to protect households against the spiralling cost of heat and light.

A review of the household price cap by industry regular Ofgem could see annual bills rise by £500 to £700 a year from April 1.

This would take the current figure for a household – based on typical use – from £1,277 to approaching £2,000. Options include switching green levies, which are helping fund the shift to renewable power, to general taxation.

The chief executive of British Gas parent company Centrica, Chris O’Shea, said: ‘Overnight, this would reduce annual bills by £170. It would also be fairer. Funding environmental costs through the bill means every customer pays the same amount, regardless of how rich or poor they are.’

He added that a VAT cut ‘would also be a Brexit dividend, of which we have not seen very many’.

Former Cabinet minister David Jones also backed a VAT cut, saying: ‘There are an awful lot of people looking at the likely energy bill increase in April and wondering where the money will come from. It is not just the poorest.’

Labour has also backed a VAT cut, with Shadow Chancellor Rachel Reeves saying: ‘People are being hit by a cost-of-living crisis which has seen energy bills soar, food costs increase and the weekly budget stretched.’

She called on the Government to ‘immediately remove VAT on domestic energy bills over winter’.

The Treasury rejected the idea it would benefit from rising energy prices as bigger fuel bills would leave people with less money to spend on goods that attract higher rates of VAT.

Health Secretary Sajid Javid said it was ‘right to have the approach that targets the support on those most in need’ but a Government source said that it remained possible ministers might instead agree more widespread support.

No 10 yesterday rejected the idea of scrapping green levies on bills, saying they were needed to help build a more resilient energy network for the future.

During the Brexit referendum, Boris Johnson suggested leaving the EU would allow the UK to cut VAT on fuel so ‘energy bills will be lower for everyone’ but this week he downplayed the idea. 

  • One of Scotland’s two nuclear power stations, Hunterston B, was switched off yesterday after 46 years’ service.

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