Rishi Sunak has warned colleagues there is little the government can do to abate soaring energy prices as he mulls whether to slash VAT on energy bills.
The chancellor has reportedly told other government ministers that any government help on the cost of living crunch should be targeted at those who need it most.
The Resolution Foundation last week calculated that the average family is set to face a £1,200-a-year income hit in April when a rise in National Insurance Contributions comes into place and the energy price cap rises again.
The price cap increase will likely see energy bills increase by around 40 per cent due to soaring global market prices.
Business secretary Kwasi Kwarteng will meet with British energy suppliers today to discuss proposals to limit the cost of living crunch on households, with a number of proposals to be discussed.
These include slashing VAT on energy bills, increasing the warm homes discount offered to low-wage households and providing loans to energy firms.
Allies close to Sunak told the Financial Times that the chancellor has not ruled out cutting the five per cent VAT on energy bills, but that it is not his preferred option.
The chancellor has told colleagues that the measure, which would cost £2bn in tax revenues, would be poorly targeted as it would also help those that are well-off.
“There’s only so much the government can do,” a Sunak ally told the FT.
It comes after Boris Johnson also appeared to rule out the measure in yesterday’s Covid press conference.
It was pointed out that Johnson wrote in The Sun during the 2016 Brexit referendum that leaving the EU would lead to lower fuel bills as VAT could be slashed.
The Prime Minister indicated that this was no longer his thinking.
“It’s a bit of a blunt instrument and the difficulty is that you end up also cutting fuel bills for a lot of people who perhaps don’t need the support in quite the direct way,” he said.