Chancellor Rachel Reeves is reportedly considering cutting the five percent value-added tax on domestic energy bills to zero as part of a package of measures aimed at reducing household energy costs, The Times reported.
Officials at the Treasury and the Department for Energy Security and Net Zero have been asked to work up budget options ahead of Reeves’s annual spending statement on November 26, according to the report. Removing the VAT on household energy would, the report said, save consumers around £86 a year while costing the Treasury roughly £1.75 billion.
Downing Street has also been pressing the energy secretary, Ed Miliband, to prepare viable proposals in time for the budget, and officials at the energy department discussed a range of options on Friday, including the removal of green levies from bills. Those levies are estimated in the reports to add about £215 a year to an average household energy bill, and removing them has been floated as an alternative or complementary measure.
A Treasury source quoted in coverage of the discussions said: "The chancellor told cabinet that both she and the prime minister are determined to tackle inflation, address the cost of living crisis and get serious about bringing down energy bills." Reeves has told ministers that "all options were on the table," while officials continue modelling the fiscal and distributional impacts of potential interventions.
There is scepticism among some MPs and commentators about whether such measures can be funded without offsetting revenue elsewhere. Economists and government sources note that higher borrowing costs, a weaker growth outlook and a failure to pass planned welfare cuts through parliament mean the government may need to find tens of billions of pounds in additional revenue or savings over coming years.
Reeves has sought to balance short-term relief for households with long-term fiscal plans. In recent appearances she has signalled an interest in reforming business property taxation to support growth, proposing to smooth sharp increases in property tax liabilities that can discourage small firms from expanding. A finance ministry report on business property taxation recommended changes including adjusting how the tax is calculated and enhancing reliefs where property values rise because of improvements.
The debate over energy bill relief comes as the government prepares for its autumn budget on November 26. Officials are said to be assessing a range of options and trade-offs, with the Treasury analysing both the immediate fiscal cost of measures such as a VAT cut and the longer-term economic effects. Any final package will be weighed against the need to maintain public finances amid ongoing borrowing and inflationary pressures.
Reeves has framed her approach around addressing both cost of living pressures and the need to boost growth. "Our economy isn't broken, but it does feel stuck," she said alongside the business rates report, urging tax changes to remove "cliff-edges" that hit growing firms. As details are finalised, ministers and officials are expected to set out more precise estimates of costs and beneficiaries in the run-up to the budget.