A cut in VAT would send the right signal to the public


One way to hold back the precipitous rise in gas and electricity bills would be to cut VAT on energy. This is levied at five per cent, a legacy of the UK’s membership of the EU and one that Boris Johnson promised to abolish during the referendum campaign in 2016.

In an article in The Sun newspaper, he wrote: “When we vote Leave we will be able to scrap this unfair tax.” He was reminded of this at the Downing Street press conference on Monday but was no longer wedded to the idea. “The difficulty,” he said, “is that you end up cutting bills for a lot of people who perhaps don’t need the support in quite the direct way that we need to give it. We need to help people who are in fuel poverty the most.”

It is true that VAT makes up a small proportion of total bills and that removing it would disproportionately help better off people. The Government is also pursuing a zero carbon policy which is responsible for about 25 per cent of household energy bills through levies.

But the Prime Minister’s answer betrays a disconcerting view of how the tax system should work. He appears to regard it as something to be targeted on the poor, like welfare benefits, a view that was held by Gordon Brown and sees the state as the ultimate arbiter of how we should spend our money. It also assumes that middle-class taxpayers should continue to pick up the bills without complaint as though they don’t also feel the pinch of higher living costs.

Moreover, since the Treasury is receiving substantial extra cash as a result of the energy price rises, removing VAT would be revenue neutral. It would be a signal that the Government understands concerns about energy costs but would also be a statement of intent about other taxes. Notably, these include the rise in National Insurance contributions planned for the spring in time to add to the cost of living shock that faces millions of voters then when the cap is removed from energy bills.

The NIC increase was sold to the country as an “NHS premium” to pump money into health to make up the costs of the pandemic. A far better way to do that would be to scrap the planned rise and divert the billions of pounds being wasted on anti-Covid measures like mass daily testing of “key” workers which is just adding to the problems in the health system and in many other walks of life. These issues will all come to a head in a few short months. Does Mr Johnson have a plan for dealing with them?


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