Household Energy Bills: VAT

Alan Brown Excerpts

Tuesday 11th January 2022 Commons Chamber

[Mr Clarke]

Well, this is the Government who have introduced the £500 million household support fund, which is designed to help the most vulnerable households during the course of this winter. This is the Government who are making sure that we are delivering through our action on universal credit and on the national living wage, the rise in which will come into effect in April, and through the wider package of support, which I will come on to in a moment, including the warm home discount, cold weather payments—all the things that are designed to ensure that we give targeted support to people like Gillian who need it. I would remind the hon. Gentleman that Teesside is one of the best examples of levelling up that we have had anywhere in this country. One only needs to look at the response of the Teesside public to what is happening in our area to see the difference that a Conservative Government are making for our community.

Our record of investment in renewable energy is, of course, in great contrast to that of the last Labour Government. Labour’s 1997 manifesto specifically stated:

“We see no economic case for the building of any new nuclear power stations.”

The legacy of that is now seen today. While in government Labour failed to diversify our energy supply, with renewables making up just 7% of our energy mix, compared with 43% today.

While the up-front costs of certain technologies may be high in the early years of their deployment, they are falling over time. We have already seen the cost of offshore wind fall dramatically, together with that of solar panels and batteries. Our heat and buildings strategy set a clear ambition of working with industry to reduce heat pump costs by at least 25% to 50% by 2025, and to parity with gas boilers by 2030.

On the specifics of this debate, as I alluded to a moment ago, we have already introduced measures to support vulnerable households with the costs of energy, including increasing the warm home discount, winter fuel payments and cold weather payments, which together provided almost £2.5 billion in support to households last winter.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Can the Minister tell me how much the Government pay for the warm home discount?

[Mr Clarke]

I am sorry, could the hon. Gentleman repeat that?

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[Alan Brown]

Can the Minister tell me how much funding the Government put into the warm home discount that he is bragging about?

[Mr Clarke]

The share of our support is going up. We are also increasing the number of people who are likely to be in scope. We are consulting on increasing the number of people for whom that discount provides a benefit by 780,000. It will also likely rise in value from £140 to £160, so it is an expanding benefit.

Vulnerable households will also be supported with the cost of essentials through the £500 million household support fund. That funding has been made available to local councils across England to support their residents this winter. Importantly, in recognition of the fact that families should not have to bear all the VAT costs they incur to meet their needs, domestic fuels such as gas and electricity are already subject to a reduced VAT rate of 5%. In response to the Opposition’s calls to go further on VAT costs, I would note that that would mean our spending a significant amount on subsidising the fuel consumption of some of the wealthiest. When we look at our response to all these challenges, we need to ensure that we spend taxpayers’ money on the most effective possible interventions to support the households struggling the most with the cost of living.

The cost of living is not about any single bill or expense. That is why, at the autumn Budget, the Government put in place a host of measures to help families with the cost of living.

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[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is incredible, given the current cost-of-living crisis, that the UK Government seem to be incapable of doing anything different. The Chief Secretary reeled off a list of measures that the Government were already taking, but there was nothing new in his speech. There was nothing about what the Government are doing to tackle the current crisis, and they need to think again.

We have already seen the broken promises about lower energy bills post Brexit. Now all the Tory Back Benchers who campaigned for lower VAT on energy bills are queuing up to back the Government not to introduce a VAT holiday, and that makes no sense either. The fact is that without Government action, a real crisis looms. It is not credible for the energy cap to rise to approximately £2,000 a year in April. National Energy Action estimates that there are already 4.5 million fuel-poor households in the UK, which is a disgrace, and if the cap rises, as is predicted, the number will rise to 6 million. The Government really need to think about that, and take action to prevent it.

It is also worth looking at how the cap operates at present. It does provide protection for the vulnerable, but not enough protection. A constituent of mine who is on the standard variable tariff is struggling to pay her bills. Because the cap is based on average energy units, she is already paying £200 more per annum than the predicted cap. I urge the Government and Ofgem to look at how the cap works in reality.

As has been said, raising the cap to the extent that the average user will pay £600 more per annum would be so damaging that it cannot happen. I therefore support the calls for Government loans to be used to help energy companies to smooth over the transitional costs over, say, 10 years. I certainly support further direct intervention to mitigate any fuel rises. On that basis, I am happy to support the VAT holiday proposed in the Labour motion, although the predicted £89 annual saving will be wiped out if the Government do not take action to mitigate the cap.

[Sammy Wilson (East Antrim) (DUP)]

I am glad that the hon. Member appreciates one of the benefits of Brexit, namely that we now have the option of reducing VAT—and I do not understand why the Government will not do that—but does he recognise that as a result of the flawed deal in Northern Ireland and the fact that the Northern Ireland protocol leaves Northern Ireland under the EU VAT regime, any reduction in VAT could not apply to consumers in Northern Ireland, because EU VAT rules still apply there?

[Alan Brown]

I was not aware of that, but it appears from recent figures relating to the impact of Brexit that the protocol is protecting Northern Ireland, and it is not taking the same hit to its economy as the likes of Scotland. It is swings and roundabouts. The Northern Ireland economy is doing much better than it would have as part of Brexit Britain.

I have said that I certainly support the VAT holiday, but I am not sure that some of the rest of Labour’s £6.6 billion package and rhetoric has been completely thought through. The real windfall tax should be levied on the Treasury. As our energy bills have increased, so have VAT returns to the Treasury; as fuel prices have increased, the Treasury has raked in more money in fuel duty and VAT; and as for the North sea, it was confirmed in the Red Book for the November Budget that this financial year the Treasury will receive an extra £1.1 billion in oil and gas revenues compared with the March 2021 prediction, and the Treasury will receive an extra £2 billion from oil and gas revenues in this coming year and £6 billion in total over the Parliament. The Treasury should release the additional windfall revenue it has received.

Although to impose a windfall tax directly on oil and gas companies is an easy political soundbite, it has potential implications, so what discussions has Labour had with the industry? What assessment has Labour made of the levels of investment—which could be part of the decarbonisation agenda—that might be clawed back because of such a tax? The harsh reality is that every previous windfall tax on the oil and gas industry has led to a drop in capital investment.

In our transition to net zero, we do need to get off our dependence on oil and gas, but the reality is that carbon capture and storage is part of the pathway to net zero. What assessment has Labour made of the potential impact on such projects, and particularly on the Scottish carbon capture cluster, which has already been sacrificed to reserve status by the Tory Government?

[Jacob Young (Redcar) (Con)]

On low-carbon energy, if the hon. Gentleman wants us to get on a more sustainable footing where we do not rely on oil and gas as much, why did he, his SNP colleagues, the Lib Dems and even some Labour MPs oppose the Nuclear Energy (Financing) Bill last night?

[Alan Brown]

Let me come to the next part of my speech, which will address that point. I am absolutely incredulous that, as the hon. Gentleman pointed out, Labour MPs were whipped to vote for that Bill, which will add billions of pounds to electricity bills. The Bill’s impact assessment, published by Ministers, shows an upper estimate of £63 billion for the capital costs and financing of a new nuclear power station. That is to be paid for by bill payers. That is not low cost: it is a burden of something like £40 billion to £60 billion added to our energy bills—and Labour voted for it. How can Labour MPs talk about lowering energy bills when they just voted to add £50 billion to our bills as bill payers? It is nonsensical and they need to rethink their nuclear policy rapidly.

On nuclear, the Chancellor allocated £1.7 billion for the development of Sizewell C to the final investment stage. That sum of money could pay for the Coire Glas pumped hydro storage scheme in Scotland, as well as the Cruachan dam extension. Those projects could be delivered quicker than Sizewell, they do not come with a £50 billion capital finance burden, and further investment in pumped hydro storage would save £700 million per year in operational costs compared with a reliance on nuclear.

Greater imagination is required in energy policy. The policies from both major UK parties sum up Scotland’s place in the Union: the Scottish CCS project has been relegated to reserve status; Scottish bill payers are having to pay for a new nuclear power station; and we are stuck paying the highest grid charges in Europe, which not only disadvantages Scottish renewable projects but means higher bills for everybody across Great Britain. Meanwhile, the Scottish oil and gas industry is asked to pay to mitigate high fuel bills throughout the UK. What about demanding that at least some of the additional oil and gas revenues are released to match fund the Scottish Government’s £500 just transition fund for the north-east of Scotland?

[Patricia Gibson (North Ayrshire and Arran) (SNP)]

The Business Minister said it was a “mistake” for the UK Government to withdraw support for the UK’s gas storage site in 2017. That site provided 70% of UK storage capacity and helped to protect consumers from price shocks; we now have some of the lowest gas-storage capacity in Europe. Does my hon. Friend agree that the Minister should have acknowledged that and apologised when he was on his feet?

[Alan Brown]

I agree wholeheartedly. It is interesting that the Government are now revisiting the Rough gas-storage scheme. Yes, there has been a global impact on wholesale prices and prices would have risen, but it is clear that storage facilities would help to provide a buffer for the UK in times of need.



If we look at the history of North sea exploration, Scotland has paid £375 billion of oil and gas revenues to the Exchequer, which has been squandered by successive UK Governments. For all these years, the SNP has called for an oil and gas fund to be set up, which could have been utilised in this time of need. Norway did not start its oil fund until 1990, yet it is already the largest sovereign wealth fund in the world. It grew by £90 billion during 2020—one of the covid years—and now has assets worth well over $1 trillion. That is the kind of long-term strategic planning that has been missing in the UK but that would create a buffer when required.

[Craig Mackinlay (South Thanet) (Con)]

I may have missed it, but an element of clarity may be needed in the SNP’s position. The hon. Gentleman said that the SNP will support the reduction in VAT. Is it right that the SNP’s ambition is to be an independent country in the EU, under which his ambition to have 0% VAT on fuel would be completely scuppered and dictated to by other people in Brussels? Is that the SNP’s position?

[Alan Brown]

I will make it clear for the hon. Gentleman: yes, our ambition is to be an independent country and yes, we want to join the EU. The vote today is about a temporary VAT holiday. The argument could be made that that could not happen under the EU, but energy policy would be reserved to Scotland so we would have much fairer policies. We would be able to do more and make other decisions, which would not rely on us having to back a 5% VAT holiday in Westminster. We would be able to do a lot more as an independent country, even in the EU.

[David Duguid (Banff and Buchan) (Con)]

I am interested in the hon. Gentleman’s point about an independent Scotland being able to make its own decisions. Within their devolved responsibilities, the SNP Scottish Government announced the £500 million north-east just transition fund. Is he aware of any announcement yet from the Scottish Government of precisely what the money will be spent on?

[Alan Brown]

That will come out. There have been some initial announcements. I presume from that intervention that the hon. Gentleman does not welcome the development of a £500 million fund that will serve his area and that he does not support any calls for the UK Government to add to that. Does he not welcome it?

[David Duguid]

I want to know what it will be spent on.

[Alan Brown]

I take that to mean that the hon. Gentleman does not welcome it.

[David Duguid]

I welcome any funding in support of the energy transition. Much of it comes from the oil and gas companies themselves. In that respect, I welcome the stance of the hon. Gentleman and the SNP against Labour’s calls for a windfall tax on the oil and gas industry. I believe that is what he said, so I welcome that. The specific question that I am asking of the Scottish Government via SNP Members of this House is what precisely that nice-sounding £500 million will be spent on. It is not that I do not welcome it.

[Alan Brown]

I am not responsible for the administration of the £500 million fund, but the hon. Gentleman should just be grateful that it is there. It is for a 10-year investment period, so clearly it is for long-term planning.

[Sammy Wilson]

I am confused about where the hon. Member stands on energy policy for Scotland now. He wants to have an independent country that is a member of the EU and subject to EU VAT rules, which unfortunately will still apply in Northern Ireland. I also understand that the Scottish National party does not actually want to exploit the oil and gas that lie around our shores, so how does it hope to reduce the cost of energy for consumers in Scotland and ensure the supply to them?

[Alan Brown]

The right hon. Gentleman seems easily confused, but of course he is a climate change sceptic. If Scotland was in charge of its own energy policy, there would be more investment in renewables and greater hydrogen development, and we would not be paying for nuclear power. I have already said that the nuclear power stations will put up to £63 billion on to our bills; that is the estimate. We would have a much better energy policy that we could implement as an independent country and we would not have the highest grid charges in the whole of Europe.

[David Linden]

I am looking on with a degree of bemusement—the hon. Member for South Thanet (Craig Mackinlay) is engaging in a debate about Scottish independence. Does my hon. Friend welcome the fact that the Government are finally engaging in the debate about Scottish independence? Perhaps the hon. Member for South Thanet will come up and campaign in the coming referendum.

[Alan Brown]

I welcome that intervention. It is good that people recognise that Scottish independence through a referendum is going to happen, and we look forward to a continued debate about the nuances of what will happen in an independent Scotland that has control of its own policies and can choose to go back into Europe.

As I said, we need to understand that the warm home discount is actually paid for by other bill payers. I am uncomfortable with the fact—the Chief Secretary did this earlier—that the Tories brag about the warm home discount as if it is a Government-funded measure. The reality is that, as a stand-alone tax measure, the warm home discount is actually regressive, because the people who can least afford it pay the same levy as those that can afford to pay more. So while the warm home discount does help people that require help, it is actually a regressive tax measure. If Labour’s proposals were implemented in the way the scheme operates just now, that would add £200 per annum to the bills of those who are left paying for it. It is inferred that Labour’s proposals would be funded from £3.5 billion of additional Treasury receipts, but that needs to be made clear. We also need to make sure that the Tories are not allowed to do a fudge when they raise the warm home discount, but by making other bill payers pay for it, giving them a free pass to pretend they are doing something. Similarly, there has been a call for policy levies to be removed from our electricity bills. I have argued this for a while because state levies on bills are also regressive, so we need to come to a fairer taxation measure to pay for our transition to net zero.

I have another concern about current Labour rhetoric about tax rises. It is as if all tax rises are bad. That plays to the Tories’ narrative and encourages them to make tax cuts ahead of the next election. So yes, the national insurance rise is an unfair tax on workers, and it is correct to highlight that, but we need to debate fair taxation. The Chancellor shied away from setting capital gains tax at the same rate as income tax. Had he done that, it would negate the need for a national insurance rise.

In Scotland the Scottish Government have shown that this can be done differently with a low starting rate of income tax and incremental increases across the bandings so that those can afford to pay a bit more do so. This is a model that Labour should be espousing. It should be demanding that the UK Government match our £20 per week child payment and reinstate the £20 per week universal credit cut.

It has been highlighted that tax burdens are the highest in peacetime since world war two. If this were to create a fairer society as part of a genuine levelling-up agenda, it could be managed. But we have right now in the UK the worst levels of poverty and inequality in north-west Europe and the highest levels of in-work poverty this century. The UK has one of the worst pensions in the world, made worse by the Government’s cap on the triple lock, so the Chancellor is balancing the books on already hard-hit pensioners struggling to heat their homes. How is it credible to reduce pensioners’ income by over £500 a year on what it otherwise would have been this year? The UK has one of the lowest sick pay rates in the OECD with the current rate of £96 per week. That is wholly inadequate, especially if people still need support in self-isolating.

Small independent countries continue to demonstrate that they can create a fairer, more equitable society. It is time Scotland had these powers rather than having to continually tinker around the edges and have decisions imposed on us. The debate has started today. I look forward to continuing the debate in that form.

[Several hon. Members rose—]

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[Edward Miliband (Doncaster North) (Lab)]

I want to thank all hon. Members who have spoken in this debate. I particularly thank my hon. Friend the shadow Chancellor, my hon. Friends the Members for Tooting (Dr Allin-Khan), for Sheffield, Brightside and Hillsborough (Gill Furniss), for Merthyr Tydfil and Rhymney (Gerald Jones), for Batley and Spen (Kim Leadbeater), for Bradford West (Naz Shah), for Brighton, Kemptown (Lloyd Russell-Moyle), for Newport West (Ruth Jones), for Bedford (Mohammad Yasin), for City of Durham (Mary Kelly Foy), for Salford and Eccles (Rebecca Long Bailey), for Warwick and Leamington (Matt Western) and for Birkenhead (Mick Whitley), and my hon. Friend the Member for Easington (Grahame Morris) for his just-a-minute speech, which was excellent.

There are three questions at the heart of this debate. How did we get here? What short-term action should we take? And, what is the long-term plan to stop it happening again? First, on the crisis, there is no question but that there is a global dimension to this crisis. Many countries are facing strains as a result of what has happened to wholesale energy prices, but there are some undeniable facts about how badly we have been hit. No other country has seen 28 energy companies go under. They are failures that we already know will cost consumers £100 on bills. No other major European country has gas storage equivalent to just 2% of its energy demand. No other country in western Europe performs as badly on fuel poverty and insulation as the UK. These undeniable facts are symptoms of Government failure over the past decade. There were failures of regulation. They were warned repeatedly about the regulation of the sector, and did not act—in fact they loosened regulations. As the recent Citizens Advice report said:

“From 2010 onwards, dozens of companies entered the market with limited checks. Some offered good services to consumers, but others were poorly prepared.”

It went on to say that the regulatory system

“allowed unfit and unsustainable energy companies to trade with little penalty.”

It is consumers and businesses that are paying the price. There were failures of strategic decision-making, too, such as the closure of the Rough storage facility, which my hon. Friend the Member for Leeds West (Rachel Reeves) warned about when she was Chair of the Business, Energy and Industrial Strategy Committee.

Let me get to the heart of this debate, and I say this to the anti-net zero tendency in the Conservative party. We can reach two different views. Some Conservative Members say that it is because we have gone too fast on the green transition. I say that they are dead wrong; it is because we have gone too slowly. It is continued dependence on fossil fuels that makes us more vulnerable and less resilient. Let us take energy efficiency. A 2014 study showed that a comprehensive programme of energy efficiency could cut gas imports by a quarter, but what have we seen? We have seen the abolition of the zero carbon home standard, the fiasco of the green deal and the fiasco of the green homes grant. That is why emissions from buildings are now as high today as they were in 2015, and it is not just about energy efficiency. Before this debate, I looked up the number of onshore wind turbines being constructed each year in the past four years—it is because I am a nerd. I will not do a guessing game in the House as I do not have the time. The answer is that just four turbines a year were granted planning permission in the past four years. It makes no sense, because onshore wind is the cheapest power at our disposal—so much for being the Saudi Arabia of wind power; it is just hot air.

I come now to what short-term action should be taken. There is a divide in this House between a party that has some proposals and a party that does not. Fundamentally, that is it. Conservative Members can talk all they like about the Order Paper and all that stuff, but they do not have an answer. We have come forward with an answer. What is the principle of the answer? It is this: we help all families, and we give most to those who need it most. I want to explain this to the House. We have said that we want to increase the warm home discount from £140—£150 from April—to £400. We want not just to increase it, but to extend it from 2.2 million households to 9 million households, or one third of families. That is the right decision to help the poorest people in our society who are going to be so badly hit. But we all face a dilemma, and we need to be honest about this. It is right to help the poorest, but it is not just the poorest who are facing tough times as a result of this crisis; it is those in the middle as well, and the swiftest, most direct way of helping those families is to get rid of VAT on energy bills.

Perhaps I am a bit naive in thinking it surprising that this idea is controversial, because this is a Government whose Prime Minister and Home Secretary, along with 26 Conservative MPs, used to think that it was the bee’s knees. They thought it was a great idea. It was not some random, chance remark made by the Prime Minister; it was a promise made over and over. Given the Prime Minister’s long and distinguished record of integrity, demonstrated again today, surely the British people were entitled to take him at his word when he said that

“we will be able to scrap this unfair and damaging tax”,

and again, just two years ago, when he said:

“Not only will we be able to reduce VAT in the UK, but we will be able to do it in Northern Ireland as well.”

As Conservative Members consider how they will vote in a few minutes’ time, instead of making arguments about the Order Paper, why do they not look at the substance of the motion? Labour Members say, “Let us take action”; their Government have nothing to say. That is the difference, and they should join with us. The problem is not just that the Government have nothing to say. I think we got to the heart of where they really stand on Sunday when we heard what the Education Secretary said when he was sent out to comment. It is not great being a Government Minister going out there at the moment, to be honest; I remember times like that in the Labour Government too. The Education Secretary—I had to double and triple-check this quote—said:

“A windfall tax on oil and gas companies, who are already struggling in the North Sea, is never going to cut it.”

“Already struggling”? As my hon. Friend the Member for Leeds West said, the chief executive of BP, Bernard Looney, said that the price rises were a “cash machine” for his business. It is not putting that money into investment; it is putting it into dividend share buy-backs from its shareholders. Who is filling up that cash machine? It is working people. All we are suggesting is something quite simple, which is a one-off windfall tax for a year to get some of that money back and help families right across this country.

Short-term action is essential, but we need long-term action as well. There is a very big difference we could make to families, and that is a national mission to retrofit homes in this country. It is the closest thing there is to a no-brainer with regard to energy policy. We could cut bills by up to £400. We could make ourselves much less dependent on volatile fossil fuels. That is why we put forward a plan for a £6 billion a year retrofit and zero-carbon energy programme to insulate 19 million badly insulated homes. But the Government refuse to act. They offer piecemeal privatised programmes that do not work, and they are still short of their very inadequate manifesto promise on this. We can get a sense of where the Government stand. When they had the fiasco of the green homes grant—I do not blame them for thinking it was not going very well—they did not plough the money saved back into retrofit but simply cut £1.5 billion of investment. We need to go faster on energy efficiency. We need to invest in our ports and grid so that we can meet and exceed 40 GW of offshore wind. We need to end the effective moratorium on onshore wind, embrace tidal power and other forms of renewable energy, drive forward our nuclear programme and invest in clean energy storage.

There needs to be a proper inquiry into how we ended up with the disastrous regulation system under this Government and a root-and-branch reform of that system so that we never again have a situation where so many companies go bust and it is the British people who are left to pay the price, with such a dramatic impact on their bills. I am afraid to say that the culpability lies directly at the Government’s door: they were warned and they did not act.

This debate has been revealing in very many ways.

[Alan Brown]

Will the right hon. Gentleman give way?

[Edward Miliband]

I will not.

We have a Government who got us into this mess and have no clue how to help the British people out of it. They are paralysed in the face of this cost-of-living crisis. They do not have any answers for the British people, either now or in the future. That is why we are acting. I urge Members from all parties to join us in a few minutes and vote for relief for hard-working families across this country.