Boris Johnson has batted away calls to cut taxes on energy bills despite the looming cost of living crunch because it would help “a lot of people who perhaps don’t need the support”.
The prime minister’s spokesman said that the causes of the surge in energy prices were global and that removing VAT on domestic fuel would not necessarily cut households’ costs.
A group of 20 Conservatives have called on Johnson to remove the tax, arguing that because of it Britain was increasing prices “faster than any other competitive country”. VAT is levied at 5 per cent on energy bills.
At a televised Downing Street press conference, the prime minister said that he was “not ruling out further measures” and acknowledged that Britain did now enjoy the “freedom to regulate our own VAT” but set out his opposition to the proposal.
He said: “The argument is that it’s a blunt instrument and the difficulty 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.”
The demand is awkward for Johnson because he promised during the 2016 EU referendum campaign that Britain would be able to remove VAT from energy bills after Brexit.
“In 1993, VAT on household energy bills was imposed. This makes gas and electricity much more expensive. EU rules mean we cannot take VAT off those bills,” he wrote in May 2016 in a joint article with Michael Gove, now the levelling-up secretary, and Baroness Stuart of Edgbaston, who was then a Labour MP.
“When we vote Leave we will be able to scrap this unfair tax. It isn’t right that unelected bureaucrats in Brussels impose taxes on the poorest and elected British politicians can do nothing.”
Many of the Conservatives who signed the letter to Johnson on Sunday were fellow Brexiteers, including the former cabinet ministers Esther McVey, David Jones and Lord Lilley.
The MPs and peers also called for the removal of environmental levies, which are used to fund renewable energy schemes, saying they accounted for 23 per cent of consumer electricity bills.
Johnson’s spokesman rejected that argument too, saying: “The exposure to volatile global gas prices underscores the importance of our plan to build a strong, homegrown renewable energy sector to further reduce our reliance on fossil fuels. It’s right that we invest in this and ultimately bring down the cost of renewable energy sources while supporting lower-income and vulnerable households with their energy bills.”
According to some predictions bills could rise at least 50 per cent in April.
Kwasi Kwarteng, the business secretary, has held meetings with energy sector representative about ways to mitigate price rises. They will reconvene tomorrow, when they are likely to discuss the proposal that the government oversee a mechanism for price rises to be spread across several years.
At the weekend Greg Jackson, the chief executive of Octopus Energy, told media: “The next price cap announcement is in February. And so there’s still time between now and then for us to find ways to say, this is a once-in-30-years event — why not spread the cost over a number of years?”
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Boris Johnson rules out cutting VAT from bills despite Brexit pledge