VAT on domestic gas and electricity totalled £1.68 billion for the year 2011-12 – up from £1.07 billion in 2009-10. And recent price hikes unveiled by three big six energy suppliers could add another £158 million to the Treasury’s VAT receipts according to price comparison website, energyhelpline.com.
The Conservative MP who won a freeze on petrol duty, Robert Halfon, this week joined a growing call for an end to the 5 per cent VAT on domestic energy. But European Union law places a minimum VAT levy on domestic energy at 5 per cent and would prohibit such a move. “[VAT on energy] should be scrapped or reduced, it is a realistic way of cutting energy bills and a Conservative way as well,” Halfon said.
The anticipated VAT receipts for 2013 come to more than the total £1.2 billion cost of the four-year Warm Homes Discount scheme for over 70s.
Utility Week has calculated that the Treasury’s VAT windfall since 2010 was fueled by cold weather as well as price hikes. The average energy price increases announced by the big six have added more than 30 per cent to bills from 2010 to date based on the recent price increases announced by British Gas, SSE and Npower. And according to government figures energy consumption increased about 20 per cent since 2010 – boosted by exceptionally low temperatures in 2011.
Halfon has called on the government to renegotiate VAT to repatriate the power to set VAT levels ahead of the referendum on Europe next year.
According to a Treasury spokesman, “Any change to legislation would require a proposal from the European Commission and the unanimous agreement of all 28 Member States.”