‘Wrong decision!’ Rishi Sunak slammed for plans to cut VAT on energy bills – ‘not enough’

Rishi Sunak's VAT plans discussed by Tom Harwood

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The Tory leadership candidate made the announcement yesterday, stating the move would help families. However, some experts appear less than impressed by the measure as energy bills continue to rise. 

Sue Rathmell, partner and indirect tax specialist at MHA, highlighted the former Chancellor rejected this policy at last year’s Autumn Budget.

The expert stated he was correct to do so, bringing his new plans under scrutiny.

She said: “Rishi Sunak’s comment that he will cut VAT on energy bills from five percent to zero follows his refusal to do this last year on the grounds that such a cut would disproportionately benefit wealthier households.

“He called it right then. His U-turn now is more about getting headlines in his efforts to win over the Conservative party than it is to help poorer members of our society.

“The best way to help families and individuals in financial difficulty is targeted payments and not a cut to the VAT rate on electricity.”

Ms Rathmell explained wealthier households tend to have larger houses, and use more energy as a result.

Consequently, she argues, a VAT rate cut would mean saving these individuals money when they are “people most able to pay”.

She added: “If he wants to help relieve the cost of living crisis Rishi Sunak would do far better to offer further rebates to families living in energy poverty.”

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The Tory leadership contender has promised to introduce the measure to help Britons with their household bills – which are continuing to soar.

He described the measure as being “temporary and targeted” to assist individuals this winter.

Mr Sunak asserted the decision would save the average household some £160, “making the most of our Brexit freedoms”.

He added: “As Chancellor, I knocked £400 off everyone’s energy bill and provided support of £1,200 for the most vulnerable households.

“This additional VAT cut will help deal with the current emergency.”

Richard Neudegg, director of regulation at USwitch, has also scrutinised the former Chancellor’s promise.

He described the move as a “positive step”, but suggested more could potentially be done.

Mr Neudegg stated: “Temporarily cutting VAT from energy bills is a reasonable idea to put on the table, and could be part of the solution. But it won’t be enough by itself in the face of the price rises that are to be revealed in less than a month.

“If the average bill were to hit the predicted £3,244 from October, removing the five percent VAT would save £154 a year. 

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“This potential saving looks dwarfed by the fact that bills this winter are set to be around £2,000 higher on average than last year – and around £500 more than was predicted when the Government set out its support package in May.

“What really matters is what specific financial support will be provided to people on their bills, particularly the vulnerable, rather than the delivery mechanism.

“Above all else, households need clarity as soon as possible to help them plan for the most expensive winter in living memory.”

Experts have suggested the average household’s energy bill may hit £500 in January alone.

BFY Group stated its expectation the cap on bills will soar to £2,850 between January and April of next year.

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