Green industrialist and Labour donor Dale Vince has called on the government to "go the whole hog" in reforming energy bills, arguing that removing VAT and standing charges from both gas and electricity could save the average household £400 a year.
His comments follow a request from Greater Manchester Mayor Andy Burnham for Chancellor John Healey and Energy Secretary Miatta Fahnbulleh to consider scrapping standing charges from gas bills. These fixed daily fees cover the cost of gas connections but are applied regardless of how much energy a household uses.
The Prime Minister has already announced the removal of VAT from the electricity element of bills over this winter, one of his first measures after taking office. Vince, the millionaire owner of energy firm Ecotricity, wants the government to extend that approach to both fuels.
Vince's case for removing VAT and standing charges
"The government has done the right thing by removing VAT on electricity bills," Vince said, adding that "electricity is not a luxury but nor is gas."
"Why stop there with half a job done at the Budget? Let's have some consistency. Why one and not the other? The government should go the whole hog and remove VAT and standing charges on electricity and gas bills. That's worth £400 on a typical yearly bill," he said.
He went on: "VAT is a luxury tax, energy is not a luxury, it makes sense to remove it. By the way there is no VAT on air conditioning units or heat pumps but there is on gas boilers - pointing to a wider inconsistency in the way this tax is applied."
Vince also highlighted the impact of standing charges on low-usage households. "Standing charges are a charge for being connected to the grid. People pay them whether they use energy or not. That affects people that use the least, the most. These changes would help the five million people in our country who are in energy poverty the most," he said.
Possible changes and Budget expectations
It has been suggested that the gas standing charge could be included in the unit rate households pay instead, which would benefit lower-usage customers. However, some campaigners warn it could penalise vulnerable customers who need to use a lot of energy for medical reasons. Any change to the standing charge is highly unlikely to come this winter.
Vince's suggestion comes as Chancellor John Healey is expected to announce help with energy bills in this week's Budget. While any measures could benefit all households, it is more likely that the support will be targeted at those most in need.
Campaigners are growing increasingly concerned given forecasts that the energy regulator Ofgem's price cap could surge by more than 27% to almost £2,200 a year at the start of January.
