Cut in VAT on gas and electricity bills announced

A cut in VAT on gas and electricity bills has been agreed by Cabinet as part of measures to tackle the rising cost of living.

The principal feature of the package announced on Wednesday is a reduction of 13.5 per cent to 9 per cent in price of gas and electricity from supply between May 1st and October 31st. The cost of this measure is estimated at €46 million.

These measures will also offset the scheduled increases in carbon taxes which will kick in from the end of April, according to Government.

The increase in carbon tax would have added an additional €16.85 to the cost of an annual gas bill and €21.56 to a fill of home heating oil.

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“In contrast, the VAT reduction agreed today will result in savings of over €50 on an annual gas bill and €70 euro on an annual electricity bill,” Minister for Finance Paschal Donohoe said.

The scheduled increase in carbon taxes for home heating has become a focal point in the political debate over sharply rising energy prices with the Opposition calling for the increases to be scrapped, or paused.

The Government has consistently said the changes in carbon tax will go ahead. In an effort to mitigate the negative political and public reaction to the increase, the Cabinet approved a package of additional cost-saving measures at its meeting on Wednesday.

At a press conference outside Dublin Castle immediately after the meeting, Mr Donohoe and Minister for the Environment and Climate Change Eamon Ryan both argued that savings to households would greatly exceed the additional cost of carbon tax.

“This measure has been introduced in recognition of the challenge with the cost of living but also in particular to offset the increase in carbon tax which will take effect from May 1,” Mr Donohoe said.

The Minister said that the Government had spent over €1.9 billion since the Budget in October in measures to mitigate energy price increases, including a universal €200 rebate on electricity bills and reductions of 20c per litre and 15c per litre respectively on excise taxes for petrol and diesel.

Mr Donohoe added that the Government had approved a further reduction in excise tax on marked gas oil by 2.7 cent ensuring that “this very important fuel for our farmers” will not change on May 1st.

Inflation

Ahead of the announcement of the Government’s Stability Programme Update on Wednesday afternoon, Mr Donohoe said it estimated that inflation would be running at about 6 per cent in 2022 but warned that the war in Ukraine and the attendant instability it is causing could change that situation for the worse.

“We will also be publishing an additional scenario for our country that could be in response to more difficult changes in relation to the price and other data of energy.

“That would add further pressure on inflation as we move through the year. What we are looking to do within our country with the measures that are available to us is put in place temporary measures that will help with those higher prices while they are there. But there’s little doubt of the challenges that we are facing along with all of Europe,” he said.

He admitted it was not possible to reduce VAT on home heating oil from 13.5 per cent to 9 per cent.

He said if he were to do that he would have to reduce the VAT rate for a wide range of other products and services and it would not be a good use of public money and would not benefit those at which it was targeted.

He said other reductions announced in the package would help those who relied on home heat oil. He referred to Mr Ryan’s relieving less well-off households from payment of the Public Service Obligation (worth €60 per annum) as well as Minister for Social Protection Heather Humphrey’s approval of a once-off lump sum payment of €100 euro to over 370,000 most vulnerable households, all of which are in receipt of fuel allowance.

For his part, Mr Ryan said the State has taken 660,000 barrels stored in Denmark and Scotland from its 90-day reserve supply of oil. He said it has amounted to about five days worth of the reserve.

He said there had been a dramatic fivefold increase in gas prices compared to a year ago. “We are less at risk than other European countries. Our gas comes from Corrib, from the UK and from Norway.

“We’re not at risk in the same way that Germany or other countries are if there was disruption in gas supplies. However, the high price increase is one that’s really hitting not just gas customers, but also electricity customers as well.

“We’re also in a very tight situation with electricity supply. We had an Amber Alert yesterday. That’s one of the reasons I’m really pushing energy efficiency,” he said.

He said that the Government had approved a scheme worth €20 million aimed at vulnerable households, including those who could not afford to have any electricity cuts in their homes because of medical need. He said the scheme would allow such households to put PV solar panels on their roofs.

He also said that solar panels would be taken out of the current planning arrangements in some situation. At the moment, planning requirements have provided a barrier to people from making the switch, he said.