Tuesday, December 28, 2021
Will the Tory Government resist the temptation to keep tax receipts and cut our fuel bills?
The title of this blogpost sums up precisely the dilemma facing the Chancellor of the Exchequer as we move towards the expiration of the current cap on fuel costs and the seemingly inevitable doubling of domestic bills in the new year. For, having incurred the largest post-war public debt fighting the pandemic, Rishi Sunak now has the tantalising prospect of a £3.1 billion windfall in VAT receipts charged against these energy bills.
The Guardian reports that this windfall , built up since the October budget, would cover the projected £2.4bn cost of removing VAT from gas and electricity bills over the winter months:
The figures come from House of Commons library research, commissioned by Labour, which projects £3.1bn extra in VAT receipts in 2021-22, making a total of £135bn.
Labour’s figures were reached using the Office for Budget Responsibility’s (OBR) projections that 42.2% of VAT receipts will come from November to March. This suggests that, with £78bn raised to October 2021, a little under £57bn may be expected over the rest of the year. This would bring total VAT receipts to about £135bn. At the budget in October, the OBR forecast £131.9bn for 2021-22.
However, the Treasury said those increases would not come close to meeting pre-pandemic forecasts. A government spokesperson said: “There has been no VAT windfall. VAT receipts this year are forecast to be below the pre-Covid level, with the OBR forecasting nearly £2bn less will be received this year compared with directly before the pandemic.”
But the shadow chancellor, Rachel Reeves, said the additional cash compared with pre-budget forecasts meant the chancellor could give some relief on energy bills.
“Right now people are being hit by a cost of living crisis which has seen energy bills soar, food costs increase and the weekly budget stretched. That’s why Labour is calling on the government to immediately remove VAT on household heating bills over the winter months.”
Reeves said further action was needed to protect households from escalating bills after the next review of the energy price cap, which some experts have predicted could rise by as much as 40% when Ofgem sets it again in February. The energy regulator is also expected to enact a series of changes after the collapse of so many small providers.
The cap for the average household is £1,277 a year, but the Tony Blair Institute for Global Change estimated it could rise to almost £1,800.
The Treasury, of course, argue that if people are spending more on fuel then they will have less to spend elsewhere and that this will produce a counter-mandering effect by cutting tax revenues on those other goods. However, the case for relieving the burden on poorer households by cutting VAT is overwhelming as is a public investment in the energy efficiency of people's homes.
The Guardian reports that this windfall , built up since the October budget, would cover the projected £2.4bn cost of removing VAT from gas and electricity bills over the winter months:
The figures come from House of Commons library research, commissioned by Labour, which projects £3.1bn extra in VAT receipts in 2021-22, making a total of £135bn.
Labour’s figures were reached using the Office for Budget Responsibility’s (OBR) projections that 42.2% of VAT receipts will come from November to March. This suggests that, with £78bn raised to October 2021, a little under £57bn may be expected over the rest of the year. This would bring total VAT receipts to about £135bn. At the budget in October, the OBR forecast £131.9bn for 2021-22.
However, the Treasury said those increases would not come close to meeting pre-pandemic forecasts. A government spokesperson said: “There has been no VAT windfall. VAT receipts this year are forecast to be below the pre-Covid level, with the OBR forecasting nearly £2bn less will be received this year compared with directly before the pandemic.”
But the shadow chancellor, Rachel Reeves, said the additional cash compared with pre-budget forecasts meant the chancellor could give some relief on energy bills.
“Right now people are being hit by a cost of living crisis which has seen energy bills soar, food costs increase and the weekly budget stretched. That’s why Labour is calling on the government to immediately remove VAT on household heating bills over the winter months.”
Reeves said further action was needed to protect households from escalating bills after the next review of the energy price cap, which some experts have predicted could rise by as much as 40% when Ofgem sets it again in February. The energy regulator is also expected to enact a series of changes after the collapse of so many small providers.
The cap for the average household is £1,277 a year, but the Tony Blair Institute for Global Change estimated it could rise to almost £1,800.
The Treasury, of course, argue that if people are spending more on fuel then they will have less to spend elsewhere and that this will produce a counter-mandering effect by cutting tax revenues on those other goods. However, the case for relieving the burden on poorer households by cutting VAT is overwhelming as is a public investment in the energy efficiency of people's homes.
