Sunak pledges to cut VAT on energy bills

According to the former chancellor, it will save the average household £160 and is designed to tackle the cost of living crisis at a cost of £4.3bn to the treasury. 

The opposition Labour party has long called for the levy but hasn’t as of yet been implemented, with Sunak voting against the move in January and telling parliament the following month it would “disproportionately benefit wealthier households”. 

The move is being seen by some as a bid to counter the appeal of his rival Liz Truss in the two-horse race to become the next prime minister, with the current foreign secretary offering a £30bn package of tax cuts. 

Sunak’s latest promise on VAT came as part of what his campaign described as his “Winter Plan” to deal with inflation and the cost of living. This also included a tightening of benefit rules and a pledge to reduce the UK’s dependence on French ports. 

Commenting on the news, Sue Rathmell - partner and indirect at MHA MacIntyre Hudson - said such a move is the “wrong policy”, and believes his u-turn is more about “getting headlines” to win over the Conservative party. 

She added: “The best way to help families and individuals in financial difficulty is targeted payments and not a cut to the VAT rate on electricity. Wealthier households tend to have bigger houses and use more energy. 

“A VAT rate cut would mean more saving to them when they are the people most able to pay. If he wants to help relieve the cost of living crisis Rishi Sunak would do far better to offer further rebates to families living in energy poverty.” 

The Institute for Fiscal Studies (IFS), meanwhile, said the removal of the levy would be “bearable” if limited to a single year. However the IFS said, once removed, it would be “politically difficult” to restore in 12 months’ time when prices are likely to remain high. 

Over the long term, it would make it harder for the UK to hit its net zero target and would make any reductions “more costly overall to households than it need be”.