VAT could be slashed on energy bills thanks to post Brexit powers

A cut to the VAT rate is only possible thanks to Brexit. Under the EU rules, no member state can cut VAT on domestic electricity and gas below the 5% level.

With the UK free of Brussels, the government is now able to slash VAT rates on domestic energy bills, a move that could be a big help to the millions of consumers struggling to pay.

Wholesale gas prices continue to hover at record highs with fears growing by the day that we will see more and more energy suppliers forced to exit the market. When a supplier exits, the costs of doing so are then passed onto the wider industry and inevitably the consumer.

Food, fuel, and clothing prices are all rising raising concerns that the country is facing a serious cost of living crisis in the coming months.

With so many energy supply companies being forced to exit the market those businesses that serve them have also taken a serious with mass redundancies expected over the coming weeks and months.

For the past ten years VAT on electricity and gas bills has been charged at the 20% rate for big and energy intensive businesses and the reduced rate (also known as the de minimis threshold) available to some small businesses at 5%. This applies if they use less than 33-kilowatt hours of electricity or less than 145-kilowatt hours of gas per day.

Domestic customers already pay the reduced VAT rate of 5% on their energy bills.

With recent economic data revealing that inflation is rising and the overall economy struggling to recover from the Covid lockdowns, some economists are forecasting that a recovery could take several years unless action is taken by the government to stimulate spending.

A VAT cut on energy bills would tick two boxes – it reminds people of the benefits of Brexit and shows you’re listening to people,’ a Treasury official told the Financial Times.

Also read: A 34% hike in the energy price cap is needed to save struggling energy suppliers