Proposals being considered by Chancellor Rachel Reeves to cut the 5% VAT on electricity bills have been criticised by experts, who argue the move would disproportionately benefit wealthier households and increase carbon emissions. The measure, aimed at easing cost-of-living pressures, is estimated to cost the exchequer £2.5bn a year and save the average household £86 annually, according to charity Nesta.
Tim Leunig, a former government adviser and visiting professor at the London School of Economics, called the idea “terrible”, adding: “Most of the benefit would go to people in larger houses with larger than average electricity bills.” A former energy department official also expressed concern, stating the policy fails the test of asking those with the broadest shoulders to bear the highest burden.
Critics further warn that lowering VAT on electricity could encourage higher consumption, undermining the UK’s climate commitments. Additionally, the plan risks damaging relations with the EU, which sets a minimum 5% VAT rate on energy bills. Some in government are instead promoting the removal of green levies from electricity bills, funded by taxpayers, as a more equitable and environmentally friendly alternative.
Reeves faces a pivotal budget on 26 November, where she must address a £30bn fiscal shortfall. Among other options being considered is shifting levies from electricity to gas to incentivise heat pump adoption, a move supported by Nesta’s sustainability director Madeleine Gabriel and the Climate Change Committee’s Nigel Topping.
