Chancellor Rachel Reeves is drawing up plans to cut household energy bills in a bid to ease the cost of living and reset Labour’s economic message, The Telegraph reports.
Reeves told Cabinet last week that she had instructed Treasury officials to explore options to bring down bills ahead of her first Budget in November.
All options are said to be on the table — including possible changes to VAT and green levies.
One proposal floated over the weekend would see the current 5% VAT rate on domestic energy scrapped entirely, potentially saving households around £86 a year.
The move would cost the Treasury roughly £1.75 billion based on the current price cap.
A Treasury source told The Telegraph: “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.”
But the proposal to scrap VAT on bills has already drawn criticism.
Tax experts warned the measure could be regressive, benefiting wealthier households with higher energy usage more than those on lower incomes.
Dan Neidle, founder of Tax Policy Associates, said targeted support for lower-income households would be more effective than a blanket VAT cut.
The move comes amid growing pressure on Labour to show progress on energy costs before another winter hits.
Public concern over high bills remains strong, and Labour’s polling among 2024 voters has plummeted.
Sir Keir Starmer has brought in a team of economic advisers to support Reeves, with major decisions on tax and spending due in the autumn.
But Treasury insiders are sceptical about how much headroom exists for significant giveaways, with an estimated £40 billion gap in the public finances.
No 10 is said to be pushing Ed Miliband’s energy department for deliverable policies to support affordability while keeping Labour’s energy transition plans on track.
Miliband has previously promised to cut household energy bills by £300 by 2030 through a shift to cheaper renewables like wind. But insiders say the risk is that prices go up before they come down — and voters won’t wait until 2030.
