Prime Minister Boris Johnson should scrap VAT and environmental charges on energy bills to address Britain’s cost of living crisis, argues 20 Tory MPs and peers in a letter sent to The Telegraph.
The MPs and peers suggest the UK is worsening the problems consumers face from the global surge in wholesale gas prices through “taxation and environmental levies.”
This has caused prices to increase “faster than any other competitive country”.
The letter was organised by MP Craig Mackinlay, chairman of the Net Zero Scrutiny Group of Tory MPs, and its signatories include former ministers such as Esther McVey, Robert Halfon and Steve Baker.
The group is calling on Johnson and chancellor Rishi Sunak to step in amid fears household energy costs could double to £2,000 by April, when Ofgem next reviews the consumer price cap.
The letter warned that the price hike could push more people into fuel poverty.
They wrote: “High energy prices, whether for domestic heating or for domestic transport, are felt most painfully by the lowest paid.”
Consequently, the MPs and peers have urged Johnson and Sunak to remove VAT on energy bills, currently set at five per cent.
They argued this would be a “small” reduction but a “step in the right direction”.
The letter also called for the removal of environmental levies, used to fund renewable energy subsidy schemes, which account for 23 per cent of consumer electricity bills.
The group argued the climate change levy is “making domestic energy intensive businesses uncompetitive and again increases the costs to consumers on virtually everything”.
It is estimated both measures combined could cut £200 from the average household bill.
One of the signatories also pointed that, during the Brexit referendum, the Prime Minister claimed that leaving the European Union would allow the UK to reduce energy bills by scrapping VAT.
Gas prices have soared to record highs in recent months, amid supply shortages, increased demand and geopolitical tensions between Russia, Europe and the US.
While prices have steadied in recent days with the US supplying more liquified natural gas to Europe, flows remain below expectations and wholesale costs remain five times higher than at the start of 2021.
Government holds talks with Ofgem and suppliers to find solutions to spiralling crisis
The intervention will increase pressure on ministers, who are locked in talks with energy companies and market regulator Ofgem over potential measures to reduce consumer bills.
Business Secretary Kwasi Kwarteng recently met with the UK’s largest energy firms, with both sides coming to an understanding that customers have to be protected from runaway wholesale costs this winter, but no specific agreement on how to do that was reached.
Ofgem is currently engaged in its own review of the price cap, amid reports that the cap could be reviewed every three months instead of every six.
Alongside potential price cap reforms, it is introducing new financial stress tests, to encourage suppliers to hedge over longer periods and reduce market volatility that consumers ultimately pay for.
The marker regulator has also set aside £1.83bn to compensate energy firms that suffered losses taking on new customers from fallen suppliers through the supplier of last resort process.
The money is expected to be recouped through a surcharge that could add an additional £100 to consumer bills.
Ofgem is drawing up plans to delay the extra bill and recover the costs from consumers over a longer period.
According to reports, these costs would instead be taken on in the short term by banks or other financial institutions, who would be repaid by consumers over a longer period with interest.
However, energy companies are also calling on ministers to provide a £20bn loan to help spread wider costs of soaring gas prices over a decade – although The Telegraph reports the sum is viewed as too high by the Treasury.
The group also opposed any bailouts in the group letter – claiming it would effectively represent taxpayers being double charged.
The MPs and peers wrote: “There seems little point in levying against consumers and businesses to then pump money back out to those same consumers and the market, as is the understandable call by energy companies as this crisis grows.”
So far, 25 UK energy firms have collapsed since September following a five-fold rise in wholesale costs this year, directly affecting four million customers.
Investec believes the market fallout will already leave domestic consumers on the hook for £3.2bn, including £1.8bn to support Bulb over the winter after it fell into administration.
Ministers have reportedly been considering a number of potential options to mitigate price jumps over recent weeks.
This includes finding ways of spreading the price rises over a longer period, a possible cut in the five per cent value added tax rate on energy bills, and an expansion of the Warm Homes Discount scheme, according to The Times.
Alongside worries over energy prices, the letter also warned Johnson that his net zero strategy must not undermine the UK’s domestic energy supply and urged him to adopt a “new approach to our energy security”.
“We hardly need to point out the risks of reliance on other countries for our energy needs, especially those hostile to us,” they wrote. “This leads to the inescapable conclusion of the need to expand North Sea exploration and for shale gas extraction to be supported.”
Meanwhile, trade association Energy UK – which represent over 100 members – has described record wholesale gas and power prices as a “market-wide crisis” and has criticised chancellor Rishi Sunak for the lack of a clear plan to protect the industry.