Shadow chancellor Rachel Reeves said that if VAT was removed for six months, it would have an “immediate” impact on the financial wellbeing of households up and down the country.
Speaking on BBC One’s The Andrew Marr Show on Sunday, she urged the UK Government to take action to help people dealing with spiralling energy costs.
“People are facing a tough winter now with prices of everything going up, not least gas and electricity bills,” she said.
“When we pay our gas and electricity bills, 5 per cent of that money goes automatically to the taxman.
“It’s something very simple the government could do. It would be immediate and it would be felt automatically on people’s bills next month, and that is cut that rate of VAT from 5 per cent to zero per cent.”
Ms Reeves said that VAT receipts had come in at more than £2 billion above forecast in recent months, and called on the Treasury to use that money to “ease the pressure on people who are worried about the winter months, and about putting food on the table and heating their homes”.
She added: “This would cost £1 billion for six months and make a real difference for families and pensioners.”
Asked whether the proposed measure was a blunt instrument, given it would be targeted directly at poorer households, Ms Reeves responded: “The good thing about cutting VAT is that it is immediate and automatic. There are no long lags in applying for it and receiving the support.”
It comes as Stephen Flynn MP, the SNP’s business and energy spokesman, warned that Scottish businesses were “paying the price for the UK Government’s incompetence”.
He said: “Boris Johnson and Michael Gove said back in 2016 that energy bills would be lower after Brexit. We are now seeing the exact opposite.
“Scottish businesses are already being hammered by the red tape, labour shortages and bureaucracy brought on by the Tories’ hard Brexit and the economic impact of the coronavirus. The last thing they need is a triple whammy from soaring energy prices.”