Labour Weighs Scrapping VAT on Energy to Ease Household Bills and Tackle Cost of Living Crisis

Downing Street is preparing measures to ease the financial burden of soaring household energy bills, with Chancellor Rachel Reeves considering removing VAT from fuel bills. Reeves has reportedly tasked officials with developing proposals for the upcoming budget to cut costs and provide relief to households facing mounting living expenses.

Among the solutions on the table is a plan to reduce the 5 per cent VAT rate on domestic energy to zero. Analysts estimate that such a move would save households about £86 annually, though it would cost the Treasury an estimated £1.75 billion each year based on the current energy price cap. A Treasury insider commented that Reeves and the Prime Minister are intent on tackling inflation and alleviating the cost of living crisis.

Labour’s leadership is also weighing additional options, including the removal of green levies averaging £215 per year from energy bills. Such measures are being considered in response to mounting pressure from within the party and wider public concern about affordability as winter approaches. However, fiscal pressures are acute, with Reeves expected to raise taxes to address a reported £40 billion shortfall in the public finances, raising questions over the affordability of such giveaways.

Energy policy has become a key dividing line between Labour and Reform UK. The latter, under Nigel Farage, pledges to abolish the net zero target, blaming it for high bills and declining industrial output. Meanwhile, Conservative leader Kemi Badenoch is pledging to lift restrictions on North Sea oil and gas drilling, echoing calls for increased domestic exploration. Ed Miliband, leading the energy department, has promised to bring bills down by £300 by the decade’s end, with a greater shift towards wind power, but delays to clean energy projects could undermine these ambitions.

Recent polling reflects a growing scepticism among Britons regarding the severity of climate change risks, with a substantial proportion now questioning the need to pay higher bills for the green transition. Only a minority express willingness to absorb higher gas costs to support electrification. Labour maintains that its plans to largely eliminate fossil fuels from the power grid by 2030 will ultimately lower costs, though much depends on results materialising ahead of the next general election.

Industry voices suggest that any swift package to dampen prices could help address the “hump” of this winter’s rising costs. With the energy price cap set to climb to £1,755 annually for an average household from October, the issue is taking centre stage. Labour faces mounting expectations to fulfil its pledges on living standards, a mandate that now intersects directly with the future of Britain’s energy policy and public expectations for economic relief.