Rishi Sunak today hailed Britain’s decision to leave the EU for allowing him to cut VAT on green energy tech – but was criticised by experts who believe it does ‘nothing’ for the average Briton struggling to pay the bills.
The Tory Chancellor announced that the five per cent VAT charge for installing heat pumps, insulation and solar panels imposed on Britain by the EU will be killed off.
Mr Sunak said that ‘thanks to Brexit’ he was able to remove VAT on these materials to help bring down energy costs, as well as on wind and water turbines. He told the Commons: ‘We will abolish all the red tape imposed on us by the EU.’
He said: ‘We’ll also reverse the EU’s decision to take wind and water turbines out of scope – and zero rate them as well. A family having a solar panel installed will see tax savings worth over £1,000. And savings on their energy bill of over £300 per year.’
But Mr Sunak was criticised today for failing to help people struggling to pay their bills – let alone able to afford solar panels.
Mike Foster, CEO of the Energy and Utilities Alliance (EUA), said ‘The Chancellor has clearly not heard the outcry over rocketing energy bills faced by millions. He has done nothing in the Spring Statement to help the vast majority of consumers who face bills doubling this year.’
‘His VAT cut on solar panels and heat pumps will be welcomed by those who make them and by those who can afford to fit them, but a VAT cut on energy bills would have helped everyone.’
‘Frankly, consumers waiting to hear good news on their energy bills will be left asking, ‘is that it Chancellor?’
Britain’s Chancellor of the Exchequer Rishi Sunak gesturing as he presents the Spring budget statement to MPs including a VAT cut on green tech
Rishi promised tax savings for any British families who want solar panels on their homes
Mr Sunak said the policy will not apply immediately to Northern Ireland due to ‘deficiencies’ in the Northern Ireland Protocol but said support would be offered.
Rishi Sunak’s spring statement at a glance:
- Fuel duty cut by 5p per litre for a year from 6pm tonight
- VAT on household green energy equipment like solar panels and heat pumps is scrapped
- Household Support Fund, a grant for councils to give to most vulnerable households, doubled to £1billion
- National Insurance threshold – the salary at which it starts to be paid – increased by £3,000 to £12,570
- Sunak says it is £6billion tax cut for 30 million people
- Pledge to bring in ‘fully costed’ cut to income tax from 20p to 19p before the next election in 2024.
- Office for Budget Responsibility (OBR) has lowered growth forecast to 3.8 per cent this year, falling to 1.8 per cent in 2023 and then 2.1 per cent, 1.8 per cent and 1.7 per cent in 2024-6
- Inflation expected to hit 7.4 per cent this year. Sunak: ‘People should know we will stand by them as we have in the past two years’
- Debt interest payments hit £83billion this year due to inflation
The Chancellor also said he is doubling the Household Support Fund to £1 billion, with local authorities best placed to help those in need in their areas, adding they will receive this funding from April.
The chair of the all-party environment group has welcomed Rishi Sunak’s plan to cut VAT on energy efficiency measures.
Conservative MP Anthony Browne said: ‘As energy bills rise, it was welcome to see the Chancellor recognise the important role energy efficiency can play by cutting VAT on energy saving materials such as solar panels, insulation and heat pumps to 0%.
‘Measures like this can help reduce dependence on expensive gas and I look forward to further announcements on energy efficiency as part of the PM’s energy strategy.’
The VAT cut came amid unprecedented hikes in fuel bills made worse by Russia’s invasion of Ukraine.
Nigel Farage is demanding a vote on Boris Johnson’s ‘ruinous’ green policy to stop adding greenhouse gases to the atmosphere by 2050.
Mr Farage will launch a movement called ‘Britain Means Business’, which is modelled on his successful campaign for a referendum on the UK’s membership of the EU.
The Prime Minister has put efforts to end the UK’s dependence on fossil fuels at the centre of his premiership. But experts have claimed that plans could cost £1.3trillion.
Some Tory MPs are resisting the policy due to fears about the potential costs involved and concerns about the influence of his wife, Carrie.
The headline CPI rate came in above expectations, underlining the pain being inflicted on families ahead of the Chancellor’s Spring Statement
Moreover, it comes at a time when the economy is struggling to recover from the pandemic and energy costs are rising at a worrying pace.
The independent Office for Budget Responsibility (OBR) has calculated the cost of making buildings carbon neutral at £400billion, while the bill for vehicles would be £330billion, in addition to £500billion to clean up power generation and a further £46billion for industry.
Some Tory MPs have joined the Net Zero Scrutiny Group to oversee the Government’s green agenda, and Chancellor Rishi Sunak has raised fears about the cost.
The UK chaired climate change talks at the Cop26 summit in Glasgow last year and committed to ending its dependence on fossil fuels by 2050.
Ministers have so far rejected calls from Conservative MPs to scrap Government levies on energy bills, which make up some 17 per cent of a household’s total expenditure.
Energy costs were already expected to rise dramatically this year, but the Russian invasion of Ukraine is expected to cause even higher increases.
‘5p fuel cut is a drop in the ocean’: Drivers’ fury over Chancellor’s ‘joke’ duty slash when ‘petrol stations put prices UP last week’
The 5p cut in fuel duty was today blasted by UK motoring groups as a ‘drop in the ocean’ for hard-pressed drivers as pump prices continue to hit record levels.
Chancellor Rishi Sunak said the new reduction in fuel duty would last until March 2023 – with the move expected to reduce the cost of filling a 55-litre tank by £3.30.
However motorists will continue to battle sky-high prices, with the average cost of a litre of petrol at British forecourts yesterday at 167.3p, while diesel was 179.7p.
This is a rise of 18.0p per litre for petrol and 27.0p for diesel over the past month, in one of many factors squeezing household incomes as the pandemic subsides.
Oil prices surged straight after Russia’s invasion of Ukraine which led to an initial increase in wholesale costs for fuel retailers, although prices dropped last week.
Mr Sunak said the reduction will come into force at 6pm tonight – but motoring groups will be watching whether retailers pass on the savings to drivers, after they were accused of failing to pass on a reduction in wholesale costs earlier this month.
A man fills up his car at a petrol station in Cheshire on March 17 as prices continue to rise
Ahead of today’s announcement, fuel duty had been levied at 57.95p per litre for petrol and diesel, with VAT at 20 per cent charged on top of the total price.
Reacting to Mr Sunak’s announcement today, RAC head of policy Nicholas Lyes told MailOnline: ‘With petrol and diesel prices breaking records almost daily, and the cost to fill up a petrol car at over £92 and a diesel at nearly £100, we’re pleased to see the Chancellor has given drivers some much-needed relief at the pumps, but the reality is that a 5p cut in duty is something of a drop in the ocean.
How much money will I save from fuel duty cut?
Chancellor Rishi Sunak has announced a cut in fuel duty of 5p per litre in his spring statement. Here are a series of key questions about taxes on fuel:
What is fuel duty?
Fuel duty is levied at a rate of 57.95p per litre for petrol and diesel.
How long has it been at that level?
It has been frozen since March 2011.
What about VAT?
VAT is added on top, at a rate of 20 per cent of the combined product price and duty.
What are the latest average pump prices?
The average cost of a litre of petrol at UK forecourts on Tuesday was 167.3p, while diesel was 179.7p, figures from data firm Experian Catalist show. This is an increase of 18p per litre for petrol and 27p for diesel over the past month.
Why have prices reached record highs?
Oil prices surged immediately after Russia’s invasion of Ukraine due to supply fears, leading to a rise in wholesale costs. Prices were already increasing as global economies recover from the coronavirus pandemic.
How much will I save from a 5p per litre cut in duty?
The RAC has calculated this would reduce the cost of filling a typical 55-litre family petrol car by around £3.
What impact could the move to electric cars have?
The switch from traditionally fuelled cars to battery-powered models could cause the Treasury’s annual fuel duty income from cars to drop from £16.4 billion in 2019 to £11.4 billion in 2028, according to analysis by the RAC Foundation.
‘In reality, reducing it by 5p will only take prices back to where they were just over a week ago.
‘With the cut taking effect at 6pm tonight drivers will only notice the difference at the pumps once retailers have bought new fuel in at the lower rate.
‘There’s also a very real risk retailers could just absorb some or all of the duty cut themselves by not lowering their prices.
‘If this proves to be the case it will be dire for drivers. It also wouldn’t be totally unexpected based on the biggest retailers not reducing their prices late last year when the oil price fell sharply.
‘Temporarily reducing VAT would have been a more progressive way of helping drivers as the tax is applied at the point the fuel is sold, removing any possibility of retailers taking some of the tax cut themselves to increase their profits.
‘It’s also the case that the Treasury is benefitting hugely from the high fuel prices because of greater VAT revenue.
‘The Chancellor is currently getting 28p a litre VAT on petrol and 30p on diesel – this of course comes on top of fuel duty as VAT is a tax on a tax.’
And AA president Edmund King told MailOnline today: ‘The AA welcomes the cut in fuel duty. However, we are concerned that the benefit will be lost unless retailers pass it on and reflect a fair price at the pumps. Average pump prices yesterday hit new records – despite the fall in wholesale costs.
‘The Chancellor has ridden to the rescue of UK families and businesses who use their vehicles, not for pleasure, but to function in their daily lives.
‘Since the start of the year, the 20p-a-litre surge in pump prices has been the shock that rocked the finances of families, and particularly young drivers, pensioners and lower-income workers who need to commute each day.
‘AA research showed that even in November, when petrol pump prices set new records at around 148p a litre, 43 per cent of drivers were cutting back on car use, other spending to compensate or both.
‘That rose to 59 per cent among young drivers and 53 per cent among the lower-paid. Petrol started this week averaging 167p a litre.
‘On top of the duty cut, there has been a substantial reduction in wholesale road fuel costs feeding through to the forecourts since March 9.
‘That needs to drive lower pump prices also. The road fuel trade shouldn’t leave the Treasury to do the heavy lifting when cutting motoring costs.’
Meanwhile motorists on social media described the move as a ‘joke’ which ‘won’t make any difference’, while another said: ‘This will do nothing.’
And Howard Cox, founder of the FairFuelUK campaign, told MailOnline today: ‘It would be churlish not to be thankful to the Chancellor in cutting Fuel Duty by 5p for 12 months. Well done, Rishi.Our relentless campaigning has been fruitful.
‘It will give some respite to millions of motorists, that have had and continue to have no choice but to drive. Just as important this fiscal relief to hauliers and small businesses teetering on survival, desperately need this reduction more than most road users, it’s way overdue.
‘It will only benefit drivers and the economy if the new fuel taxation level becomes permanent and is accompanied by the introduction of an independent pump pricing watchdog, we’ve notionally called PumpWatch.
‘Today’s fuel duty reduction must be passed onto drivers immediately.’
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: ‘The fuel duty cut is better than a poke in the eye with a sharp stick, but it’s hardly going to be lifechanging for hard-pressed motorists.
‘Currently fuel duty costs around 58p a litre, and VAT almost 28p per litre. On a 55-litre tank, £47.30 is tax. The cut would mean this drops by just £2.75.
‘With the cost of unleaded petrol now almost £1.67 a litre on average it’s still going to mean we need to make some horribly difficult decisions about how and where we travel in future.
‘It’s also going to continue inflating the cost of transporting anything to stores, which will gradually feed into the price of everything on the shelves. Life is going to keep getting more expensive, and this cut isn’t going to change that.’
And Alex Kindred, car insurance expert at Confused.com, said: ‘Fuel prices continue to rise at record-breaking figures, so the cut to fuel duty is a small step in the right direction.
‘With the average cost of a tank of petrol nearly at £91, the cut will mean 5p off per litre and around £2 off your bill, on average.
‘Although it might not seem a lot in the grand scheme of things, if you tally this up every time you fill up your tank, the savings do add up. Although, this is still extremely high and unaffordable for some, so it’s clear there’s still a need to cut fuel costs.’
He said the company’s research found that two in five UK drivers are ‘making a conscious effort to drive less in order to save on fuel at the moment’.
Announcing the duty cut in his spring statement, Mr Sunak said the UK Government wanted people to know they will ‘stand by them’ in dealing with rising living costs.
He told MPs: ‘Today I can announce that for only the second time in 20 years, fuel duty will be cut. Not by one, not even by two, but by 5p per litre.
‘The biggest cut to all fuel duty rates – ever. While some have called for the cut to last until August, I have decided it will be in place until March next year – a full 12 months.
‘Together with the freeze, it’s a tax cut this year for hard-working families and businesses worth over £5 billion, and it will take effect from 6pm tonight.’
Ahead of the announcement, Dr Doug Parr, policy director at Greenpeace UK, had said: ‘The Chancellor should only cut fuel duty if he can make an equivalent cut to the costs of public transport, which offers more environmentally friendly support for those facing this cost-of-living crisis.’