Electricity Bills: VAT Removal

Question

Asked by

To ask His Majesty’s Government how they intend to fund the proposed removal of VAT from electricity bills.

My Lords, before I respond to the noble Lord’s Question, I just put on record my appreciation for the work that my noble friend Lord Livermore has done for both the Government and the Treasury in this House. I know that he will be missed at the Dispatch Box. I am sure that noble Lords also want to thank my noble friend Lord Stockwood, whom I have had the pleasure of supporting on the Financial Services and Markets Bill. I wish them both well for the future.

In response to the noble Lord’s Question, on Tuesday the Government announced immediate action to cut VAT on electricity bills to give millions of households breathing space on the cost of living. This measure is estimated to cost about £850 million in 2026-27, which will be funded by the cancellation of the digital ID programme, which was expected to cost £1.8 billion over three years. The effect of this change will ensure that we help those people who are most in need.

My Lords, if I may add to those comments, I too will miss the noble Lord, Lord Livermore, on the Front Bench. We did not agree on everything, but he certainly knew his facts and had passion and commitment when he spoke. However, the Starmer Government’s pessimism fabricated a black hole; this Government’s hubristic approach is creating a black hole. We have no real details of how these giveaways will be funded. There is talk of a grant being turned into a loan. We do not know the covenant of that loan, or the interest on it and when it will be payable. Can the Minister assure us that during the summer there will not be any further unfunded giveaways but, rather, that these types of announcements will take place properly, in the Budget, as they are supposed to do, to allow for proper scrutiny by both Houses and, equally importantly, by the OBR?

The priority of this Government is the cost of living. We want to bring the cost of living down to give people breathing space over the coming years. The OBR stated that we were due to spend £1.8 billion over the next three years on digital ID, funded from within existing settlements through reprioritisation. We are still going to find that money from within existing budgets through reprioritisation, but we will now use it for other things. The amount of money is relatively small when you consider that the last Government, as my noble friend Lord Livermore would say, left this Government with a £22 billion black hole.

My Lords, may I take a moment to welcome the noble Baroness, Lady Curran, and thank the outgoing noble Lord, Lord Whitehead? We look forward to his continuing contributions. We support this measure. As a day-one action, it is welcome—it will save about £40 off a typical fuel bill for about six months—but as a policy lever of government, it is costly and ineffective. What further action will the new Administration take to remove policy costs from electricity bills to help support further energy market reforms? They are the real policy levers we need so that we can make progress on reducing bills and continuing the energy transition.

I echo the noble Earl’s comments about my noble friends Lady Curran and Lord Whitehead. I worked closely with them both. The issue of future help for the energy market et cetera is something we will have to wait for until we do the Budget next year. In the meantime, we will continue to help people with the cost of living. I want to point out the measures we have taken that will help people in the short term: we have frozen rail fares, cut energy bills by £150, cut VAT on electricity bills to zero and we are cutting business rates for 32,000 small venues, pubs and clubs. Obviously, that is not a silver bullet, but the intent is there to do everything we can to help people who are suffering.

My Lords, the last Conservative Government, in their dying days, made a number of high-profile announcements on carbon capture, usage and storage, nuclear financing and hydrogen production. However, when the Treasury carried out its initial spending audit, it found from the capital allocation maps that it did not possess the cash required to hit the legal and infrastructural targets and rollout timetables necessary to fulfil those commitments. Does the Minister agree with me that a little more self-reflection and humility on that side would not go amiss?

I remind my noble friend that they left us with a black hole of £22 billion. Among other matters, there was £2.6 billion of new unfunded policy announcements, £6.4 billion for asylum and illegal migration, which was not funded, and £9.4 billion for pay awards, which was not funded. We need to find a few hundred million pounds to help the people most in need. I think that they should reflect on what they did in government.

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My Lords, we shall hear from the Cross Benches.

My Lords, any easing of the cost of living is to be welcomed. However, the Minister will be aware that the VAT reduction cannot be directly applied to Northern Ireland because of the rules of the Windsor Framework and the arrangements with the European Union. At best, we will have a situation in which a convoluted alternative route will have to be found, which clearly will lead at least to delays for consumers in Northern Ireland receiving any level of help. As this points to the need for a much deeper and longer-term solution, what action are the Government taking in the short term at least to get a derogation from the EU, so that Northern Ireland consumers can enjoy the same benefits as those in the rest of the United Kingdom?

We know the issues around VAT in Northern Ireland, for example on electricity bills. The Northern Ireland Executive will receive comparable funding to enable them to support NI households with the cost of living. We have taken into consideration all the issues around the Windsor Framework, and we will continue to help the people most in need who live in Northern Ireland.

My Lords, I, too, send my best wishes to the noble Lords, Lord Livermore and Lord Stockwood. I welcome the appointment of the noble Lord, Lord Pitt-Watson, and look forward to the more constructive approach favoured by the new Prime Minister. With 10-year yields above 5%, political and international instability is already increasing borrowing costs and placing the sustainability of the public finances under serious strain. Does the Minister recognise that unfunded spending commitments cannot simply be floated in the press or on podcasts without consequences? Markets react, investment and growth are discouraged, and working people ultimately pay the price, with increases in the cost of living.