Energy prices are back in the spotlight as Andy Burnham has chosen a six-month VAT reduction on electricity bills from 5% to zero from October as one of his first headline-grabbing policy initiatives.
Given that the VAT cut will take effect on the same day as the next review of the Ofgem energy price cap, it remains to be seen whether bills will actually fall as a result. With energy firms having been instructed to pass the saving directly to consumers the measure should at least have some beneficial impact on all net purchasers of electricity no matter where they are located, urban or rural.
Electricity is, however, only one component of consumers’ overall energy bills. While their salience clearly ebbs low during the current hot summer, by the time the cut comes into effect in October, attention will naturally have begun to shift to the other main element: heating.
Last week, the Countryside Alliance again raised the situation of the estimated 1.5 million rural households that do not have a gas connection and are instead reliant on heating oil. Following a request from Harriet Cross MP (Gordan and Buchan, Con) back in March, the Competition and Markets Authority (CMA) joined their cause earlier this month. It argued that while supplier price rises largely reflect genuine increases in their wholesale costs, stronger rules are needed around price quotations, cancellation policies and support for vulnerable customers. The then-Chancellor, Rachel Reeves MP, responded that the government “will look very seriously at what can be done.”
To be clear, unlike the intervention under the previous government at the outbreak of Russia’s full-scale war against Ukraine, Mr Burnham’s new policy is not designed primarily to address heating bills, although for those using electrical heating it will incidentally have that effect.
If, however, Mr Burnham’s overall objective is to address energy and not merely electricity bills, it is imperative that any further support addresses users of heating oil as well as those of other fuels.
His new government must ensure that the CMA’s intervention is not forgotten, despite the sacking of the Chancellor who promised to examine it. We would also urge him and his team to give serious consideration to the related proposal we put to the former Chancellor ahead of her last Budget in November:
“Use powers returned to the UK following its departure from the EU to reduce the VAT rate on domestic heating oil to zero, in view of the reliance on the fuel in rural areas; cut the VAT rate payable by rural businesses that use it from the current non-domestic rate of 20%.”
Since the new Prime Minister has now shown willingness to use a VAT cut to support consumers struggling with their energy bills, this call merits serious renewed thought. It could help him begin the essential work of re-setting the government’s relationship with the countryside.