SerpApi.Org
Household energy bills are forecast to rise by more than £150 despite Andy Burnham’s pledge to cut VAT on electricity.
The temporary tax cut will save households an average of £45 a year, but UK energy suppliers predict this saving will be wiped out by much larger bill increases in October and January when the price cap is adjusted.
EDF is forecasting that the average domestic energy bill will rise from £1,663 a year today to £1,865 in January. Eon is similarly predicting a rise to £1,838 in January.
The forecasts were made before the VAT cut, meaning they did not factor it in. However, the figures imply average bills will increase by more than £150 in January even after the saving is taken into account.
Cornwall Insights, the energy consultancy, forecast that average bills would rise by 2pc to £1,700 per year in October even after accounting for the VAT cut. It did not produce a forecast for January’s rise.
The forecasts undermine the claim made by John Healey, the Chancellor, that the temporary tax cut would “give families some breathing room on bills and provide some reassurance this winter”.
Martin Lewis, the founder of MoneySavingExpert, said the VAT cut was “very welcome”, but added: “In practice people won’t feel much benefit.”
The Institute for Fiscal Studies (IFS) pointed out that the real savings delivered by the policy would be lower than the £45 a year advertised by the Government, as the tax break would only last for six months. In practice, the temporary VAT cut will only deliver a saving of around £25, the think tank said.
Helen Miller, the director of the IFS, added that the policy was “not well targeted” as “the biggest cash gains will go towards richer households” that use more energy.
Adam Scorer, the chief executive of National Energy Action, which campaigns to support low-income households, said cutting VAT on electricity was welcome but offered no help to the majority of homes that rely on gas for hot water and heating.
He said: “It will help everyone, but be less useful for the huge majority of low-income households who heat their homes with gas and cannot afford the upfront cost of shifting to solar, batteries and heat pumps. It is not a trivial distinction.”
Energy bills are expected to rise as the war in Iran drives up the cost of gas. European spot prices for gas have surged from €40 (£34) per megawatt hour a month ago to nearly €60 on Tuesday as the prospect of a peace deal has faded.
The price cap figure measures the typical dual-use fuel bill, covering both electricity and gas.
Additionally, the surging cost of renewable energy subsidies to support wind, solar and grid expansion is putting upward pressure on energy bills.
Suppliers welcomed the VAT cut but called for the Prime Minister to go further in helping struggling families.
Chris O’Shea, the chief executive of British Gas owner Centrica, said: “Help should be targeted at those who most need it. We continue to believe that the most sustainable solution would be a targeted social tariff to support vulnerable households.”
Cutting VAT on electricity for six months – Mr Burnham’s first major policy announcement – will cost the Treasury £850m. Mr Healey has said the policy will be paid for through savings from the cancelled digital ID programme.
However, Darren Jones, who was sacked as chief secretary to the prime minister by Mr Burnham, pointed out in a social media post that the digital ID programme was itself unfunded.
“The Government will have to set out how it will pay for its new policies at the [next] budget,” he said.
