Cutting VAT across the board on electricity bills in next week’s budget would be a “disastrous decision” by Rishi Sunak, ex-Npower chief executive Paul Massara has warned.
Pressure has built up on chancellor of the exchequer over recent weeks to relieve pressure on households, while providing a Brexit dividend, by axing VAT from electricity bills.
During the 2016 referendum, the Vote Leave campaign touted lower fuel bills as one of the benefits of Brexit because European Union rules prevented member states from cutting VAT rates on energy below five per cent.
However, at a briefing on this week’s Net Zero Strategy organised by the Energy and Climate Intelligence Unit, Massara warned that this move would not be a good way to help the most fuel poor customers.
“The question will be whether the government feels, with cost-of-living pressures, that they need to do something about energy bills. There’s been some discussion about cutting VAT to show one of the benefits of leaving (the EU).
“From a distributional impact, that’s a disastrous decision because it would be far better to give it to people who need it rather than to everyone.”
Masssara, who now sits on the Committee on Fuel Poverty, said that while the Net Zero Strategy is a “positive step forward” overall, the government had “fallen short” on the investment required to tackle energy efficiency.
“They are lacking the ambition and plan essential on energy efficiency.
“You are going to need better insulated homes. With the current gas crisis, energy efficiency reduces gas demand and helps particularly people in fuel poverty to reduce bills.”
He also pointed to ongoing tensions between the Department for Business, Energy and Industrial Strategy and Treasury over the latter’s concerns about the “political impact” of paying for the net zero transition.
Massara noted Westminster’s reluctance to review winter fuel payments, only 10% of which reaches poorer households.
“Most politicians know that does nothing to reduce carbon, but politicians are frightened to tackle the issue because of the grey vote,” he said,
Massara also told the briefing the plunging costs of wind power mean that tidal energy has “missed its chance” although there may be opportunities to harness the technology for peaking battery propositions.
Jill Rutter, senior fellow at the Institute for Government, agreed with Massara that the strategy was relatively weak on energy efficiency, questioning whether it is overly dependent on “big technology bets” and reluctant to engage with demand management issues.
Phil MacDonald, chief operating officer at the environmental thinktank Ember, said soaring gas prices means the government will need to take a fresh look at its plans for carbon capture and storage (CCS).
“With extremely high gas prices that look likely to continue, gas CCS is looking more expensive,” he explained.