The Liberal Democrats are calling for an £18bn VAT cut that would see the rate slashed from 20 to 17.5 per cent in a bid to ease the cost of living crunch on British households.
The Lib Dems say the new policy proposal, released on the eve of the party’s spring conference, would save households an average of £600 a year to help them with roaring inflation and next month’s rise in National Insurance.
Liberal Democrat leader Ed Davey told City A.M. that “we think something pretty bold like that, quite radical like that, is going to be needed” in the wake of further energy rises after the Russian invasion of Ukraine.
“I think the government needs to get a grip, frankly, and we need to see some pretty bold action. I’ve seen some estimates that these higher oil and gas prices will take £40bn out of the economy,” he said.
“It’s very odd the Conservatives seem to be favouring tax rises all over the place.”
Rishi Sunak is under pressure to provide more help for households at this month’s spring statement, before energy prices surge further due to disruption to European energy supplies caused by the Ukrainian war.
Energy UK, a business body, is predicting that energy bills will increase by £1,000 between next month and October.
It would come after bills would have already increased by £846 from October 2021 to April 2022.
Labour leader Sir Keir Starmer pushed Boris Johnson yesterday to provide “urgent” help on energy bills during Prime Minister’s Questions (PMQs).
The Confederation of British Industry (CBI) also said the “government will need to think urgently about consumers as bills go higher still later in the year”.
It comes as annual Consumer Price Index (CPI) growth hit 5.2 per cent in January, a 30-year-high, and is expected to hit between 8 and 9 per cent this year.
Paul Johnson, director at the influential Institute for Fiscal Studies (IFS) think tank today said Sunak’s decision about whether to allocate more spending to cushion the blow to households or rein in expenditure at the spring statement on 23 March will reveal his true preferences for the role of the state.
He said: “Will he do more to protect households from the effects of energy prices which have risen even further in the last two weeks?
“If he doesn’t then many on moderate incomes will face the biggest hit to their living standards since at least the financial crisis. If he does, then there will be another big hit to the public finances.”
A Treasury spokesperson said: “We’re providing over £20bn this financial year and next to help families with the cost of living, including cutting the Universal Credit taper rate to make sure low income families keep more of what they earn, freezing alcohol and fuel duties to keep costs down, and helping households with their energy bills through our £9.1bn Energy Bills Rebate.
“We keep all taxes under review.”