Reeves is warned not to cut VAT on electricity bills

Proposals being considered by Rachel Reeves to cut tax on electricity bills will backfire, experts have warned, resulting in a giveaway to richer homeowners and undermining the UK's climate commitments.

- Exclusive Kiran Stacey

The chancellor is understood to be looking at plans to eliminate the 5% VAT charge on electricity bills as a fast and simple way to cut bills for consumers and ease the cost of living pressure that has aided the rise of Reform UK.

However, experts have said such a decision will disproportionately benefit better-off people with larger homes, almost certainly result in higher carbon emissions and could end up being underappreciated by cash-strapped voters.

Tim Leunig, a former government adviser and visiting professor at the London School of Economics, said: "This is a terrible idea. Most of the benefit would go to people in larger houses with larger than average electricity bills." He added: "If they take VAT off energy bills, you have to give up on Labour as a sensible economic party." One former energy department official said: "The government has to find some short-term relief for people and removing VAT from electricity bills is attractive because it is simple and easy for voters to understand.

But they're supposed to be asking those with the broadest shoulders to accept the highest burden, and this would fail that test." Reeves faces a career-defining budget on 26 November when she will have to explain how she will fill an expected £30bn black hole while trying not to push up living costs for millions of ordinary voters.