Sunak sets out financial support for domestic electricity customers; rules out VAT cut

The government will step in to take the sting out of rising energy prices, Chancellor Rishi Sunak said on Thursday, setting out a series of financial support schemes. However, he rejected a demand, made by businesses, among others, for a cut in VAT.

Energy prices for millions of households are set to soar from April after the energy regulator said it would increase its price cap by 54 per cent. Sunak said the government's help would provide the majority of households with £350, just over half that rise.

"For me to stand here and pretend we don't have to adjust to paying higher prices would be wrong and dishonest. But what we can do is take the sting out of a significant price shock for millions of families by making sure the increase in prices is smaller initially and spread over a longer period," Sunak told parliament.

"In total, the government is going to help around 28 million households this year. Taken together this is a plan to help with the cost of living worth around £9 billion."

The measures include a £200 discount on electricity bills for all domestic electricity customers from October, to be repaid over five years, and a £150 rebate on council tax bills for around 80 per cent of households in England from April which would not need to be repaid, he said.

Sunak said the government would also provide discretionary funding of £144 million to help people on low incomes who either do not pay council tax or are in properties that will not receive the rebate.

Chancellor was silent on non-domestic consumers though small businesses have been demanding government protection from spiralling energy costs.

As per the Federation of Small Businesses’ (FSB) latest quarterly survey, 45 per cent of the nearly 1,300 firms that participated said their costs had increased in the past three months because of rising utility bills, driven by the price of energy.

The FSB has demanded a cut in the 5 per cent rate of value added tax (VAT) on energy bills and proposed measures such as a portion of a 'redress fund' overseen by Ofgem to be made available for microbusinesses in trouble and an energy price cap for the very smallest firms.

Responding to the demand for a VAT cut, Sunak said that would “disproportionately benefit” wealthier households and become a permanent government subsidy worth £2.5 billion every year on everyone’s bills when the government is trying to rebuild the public finances.

“There would also be no guarantee that suppliers would pass on the discounts to all customers,” he added. “Instead, our plan allows us to provide more generous support, faster, to those who need it most. It is fair, it is targeted, it is proportionate - it is the right way to help people with the spike in energy costs.”