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The UK government is considering cutting VAT on domestic fuel from 5% to 0% in the 26 November Budget, offering average households £86 annual savings, but at a significant cost of £1.75 billion and broad, untargeted benefits.
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Critics warn the VAT cut is regressive, disproportionately benefiting wealthier households with higher energy consumption, while lower-income households gain less. The measure risks undermining fiscal priorities and diverting funds from targeted support for vulnerable groups.
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Alternatives include means-tested energy rebates, expanding Warm Home Discounts, targeted winter fuel payments, energy efficiency investments, and tiered pricing. These approaches better direct resources to households most in need while promoting long-term energy cost reduction.
Source: vatcalc.com
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