VAT on gas and electricity face cuts under proposals to tackle price hikes

Households could receive an additional three weeks payment of the fuel allowance while the VAT on gas and electricity could be temporarily cut from 13.5 per cent to 9 per cent, under measures discussed by Ministers

A Government meeting was held on Monday evening to discuss addressing the cost of living crisis and Ministers discussed targeted supports for those on fuel allowance including an additional three weeks payment worth €99 in one lump sum.

This could benefit about 370,000 people.

Ministers also discussed a temporary reduction of VAT and gas and electricity from 13.5 per cent to 9 per cent. It would require domestic legislation and be worth around €49 on gas and €61 for full year in electricity.

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Taoiseach Micheál Martin, Tánaiste Leo Varadkar and Green Party leader Eamon Ryan met Minister for Public Expenditure Michael McGrath and Minister for Finance Paschal Donohoe on Monday to finalise measures to help address the rising cost of fuel, food and energy.

The package of measures will likely be brought to Cabinet this Wednesday.

There were fears last week that any move to reduce VAT on fuel temporarily would mean that when the situation returns to normal, Ireland would lose an existing derogation in the EU which allows for a lower level of VAT on fuel.

Ministers were told, however, that it would be possible to temporarily lower the rate through domestic legislation without affecting the derogation, a source said.

The plan is to bring about the reduction through an amendment to the Finance Act, and to have this done after Easter.

The Government is hoping that the VAT cut will offset the planned increase in the carbon tax.

It has estimated that the carbon tax increases due at the end of April on home heating would amount to rises of no more than €1.40 a month on a gas bill and €1.50 a month on home heating oil.

The Taoiseach previously said the measures will be “targeted” to support families on low incomes.

A number of options were considered by Ministers at their meeting. One option involved scrapping the public service obligation levy which is placed on energy bills. It is charged to all electricity customers with suppliers collecting the levy through bills. The levy is €4.30 excluding VAT per month which equates to €58.57 per year inclusive of VAT.

Other options explored included mandatory time-of-day-pricing for electricity to encourage people to change their energy use to times when the costs would be cheaper.

Work is also under way on an information campaign which will advise the public on how changes in household behaviour can cut the cost of bills.

Sinn Féin finance spokesman Pearse Doherty called on the Government to introduce an emergency budget with targeted measures to support low and middle-income households. “Right now they need action, not more talk.”

He called on the Government to remove excise duty from home heating oil and to negotiate with the European Commission to reduce VAT on domestic energy bills.

He also said that cost of living cash payments should be introduced and the fuel allowance should be extended by six weeks, while social welfare rates should be increased for the most vulnerable in response to inflation.