Reducing VAT on fuel bills ineffective for low-income households
The UK government recently announced a reduction in VAT on fuel bills from 5% to 0% in an effort to provide relief to households struggling with the economic impact of the COVID-19 pandemic. However, this move may not be as effective as intended for low-income households.
While the reduction in VAT may provide some relief to households with higher incomes, it is unlikely to make a significant difference for those on low incomes. This is because low-income households are more likely to be in fuel poverty, which means they spend a higher proportion of their income on energy bills.
According to the UK government’s definition, a household is in fuel poverty if they spend more than 10% of their income on energy bills. This means that even with the reduction in VAT, low-income households will still be spending a significant proportion of their income on energy bills.
Furthermore, low-income households are less likely to benefit from the reduction in VAT because they are more likely to be on prepayment meters. Prepayment meters are often used by households with poor credit ratings or those who are unable to pay their bills on time. These meters are more expensive than standard meters, and the reduction in VAT will not apply to them.
In addition, low-income households are less likely to be able to take advantage of other measures to reduce their energy bills, such as switching to a cheaper supplier or installing energy-efficient measures. This is because they may not have the financial resources to pay for these measures upfront.
Therefore, while the reduction in VAT on fuel bills may provide some relief to households with higher incomes, it is unlikely to make a significant difference for low-income households. To address fuel poverty, the government needs to implement more targeted measures, such as increasing support for energy-efficient measures and providing financial assistance to households in fuel poverty.
