Business leaders warn Burnham’s ‘sticking plaster’ energy VAT cut ignores struggling firms

PRIME MINISTER Andy Burnham has been accused of slapping a massive “sticking plaster” over the energy crisis by business chiefs who warn his flagship tax cut totally ignores struggling British firms. Under the new Labour government’s plans, VAT on electricity bills will be temporarily slashed from 5% to zero between October 1 and March 31 next year. But experts have already warned the supposed savings for families will be instantly swallowed up by rising prices anyway, as Ofgem‘s Energy Price Cap is predicted to jump in October. MoneySavingExpert.com founder Martin Lewis warned that “in practice people won’t feel much benefit” from the temporary cut. Sign up for the Money newsletter Thank you! He said: “The Price Cap rising 5.1% on 1 Oct – as the last week has seen very high wholesale rates. An annualised rise of £93 on a typical bill. “If this happens it will wipe out any household savings from the VAT cut during that Price Cap period (those on fixes will still see a 4.8% reduction).” While some households get temporary relief on electricity, businesses facing crippling bills have been left entirely out in the cold. Critics fear Burnham’s administration is fixated on short-term tax-and-spend tactics rather than doing anything meaningful to fix the economy, unlock investment, and promote job growth. Business groups have united to demand the Prime Minister takes immediate action to protect jobs, warning that high energy bills and heavy taxes are suffocating growth. UKHospitality warned that without support for employers, recruitment will stall and the high street will suffer. Most read in Money Allen Simpson, chief executive at UKHospitality, warned that firms face “significant cost pressures” from energy, employment and heavy taxes that directly hit hiring. He said: “If the Government wants to unlock growth, job creation and investment, it needs to provide a sector-wide support that addresses the costs facing businesses.” The British Chambers of Commerce also warned that failing to support firms will force shops to raise prices for customers. Energy policy manager Ben Martin said: “Lower business energy costs mean lower pressure on prices, more investment and a stronger economy.” The manufacturing sector is also facing catastrophic risks, with firms paying some of the highest industrial energy costs in the developed world. Patrick Matthewson, energy and net zero policy lead at Make UK, warned that 13% of manufacturers fear energy rises could be “life-threatening” to their operations. He said: “Manufacturers cannot deliver the growth the UK economy needs while they continue to face some of the highest industrial energy costs in the developed world.” Energy experts at Cornwall Insight warned that unassisted firms could see bills jump “by as much as 20% by 2027”, while the CBI warned energy costs act as a “brake on investment and growth”. CBI Energy Transition Director Tania Kumar added: “Tackling the cost-of-living crisis goes hand in hand with tackling the cost of doing business.” Political opponents have slammed Burnham’s plans, calling for an end to net zero levies that drive up bills for everyone. Shadow Chancellor Mel Stride slammed the VAT cut as “a temporary unfunded subsidy” that will be eaten up by price hikes. He said: “Key to getting energy costs down for consumers and businesses is getting carbon taxes and net zero subsidies out of bills.” Reform UK Shadow Chancellor Robert Jenrick said the policy fails millions relying on gas. He said: “Burnham’s going an inch, when we need to move a mile. This VAT cut only applies to electricity, leaving millions of households on gas and heating oil in the cold. “Reform UK would scrap the green levies and carbon taxes to save all households £200 – and end the mad ban on North Sea oil and gas.” Energy consultant Kathryn Porter said the move was a “sticking plaster”, warning: “To properly lower costs action must be taken on the true causes of high energy bills and that is net zero policies that force us to pay billions to subsidise inefficient weather dependent generation.” Comment now