Cost-of-living crisis triggers VAT cut that will save families €110

VAT on electricity and gas bills will be temporarily reduced to 9 per cent as part of a new set of cost-of-living measures to deal with the ongoing energy crisis – saving consumers €110 a year.

With electricity and fuel bills skyrocketing, government leaders and senior ministers held emergency talks last night. They have been presented with an official analysis showing they can lower the current 13.5 percent VAT rate on electricity and gas without finding themselves in breach of EU tax rules.

The move could save billpayers €49 a year on electricity and €61 a year on gas.

Low-income earners who receive a fuel flat rate also receive a one-time payment of 100 euros, which corresponds to three weeks of service.

The move will benefit more than 370,000 people who will receive the payment.

However, households will still be in financial pain after a series of price hikes by utility companies. This means that the annual electricity bill for the average household has increased by €500 in the last 18 months.

Taoiseach Michael Martin reached an agreement with the European Council to examine whether Ireland could reduce VAT.

Last week it was thought that the government could not lower the tax on such bills.

However the Taoiseach, Tánaiste Leo Varadkar and Green leader Eamon Ryan have been told that laws can be changed to allow them to lower the VAT rate on electricity and gas. An amendment to the Finance Act is expected to be made.

There was also consideration of lowering the median VAT rate from 13.5 percent to 12 percent, but that would mean all products and services would be taxed at that amount, not just energy.

A long-promised cut in the public utility levy on energy bills, which will save people nearly €60 a year, is expected to come into effect in October.

Mr Ryan will also offer new advice on how people can save money by using smart meters and time-of-day pricing to lower their energy bills. He will also offer advice on helping people who have fallen into debt because they can’t afford to pay their bills.

The Taoiseach and Tánaiste vowed to offset the upcoming carbon tax hike after a backlash from their backbench TDs. It is hoped that the VAT decision will compensate for the CO2 tax increase that will come into force in May.

Also attending the meeting at government buildings were Treasury Secretary Paschal Donohoe, Public Expenditure Secretary Michael McGrath and Social Protection Secretary Heather Humphreys.

Mr Donohoe recently announced that he and Mr Ryan are considering introducing taxes on energy company profits after the European Commission gave the green light to member states to introduce new levies to tackle the cost of living crisis triggered by Russia’s invasion of Ukraine.

In response to a parliamentary question from People Before Profit TD Paul Murphy, Mr Donohoe said: “Officials in my department and the Environment, Climate and Communications Department are evaluating the potential for such a proposal.”

He said an additional 10 percent tax on energy company profits could net around 60 million euros.

The ESB Group achieved an operating profit of 679 million euros last year, which corresponds to an increase of more than 10 percent compared to the previous year. This resulted in a dividend payment of 126 million euros to the state. However, a decision was made not to implement this measure as it could also result in renewable energy companies being hit with new taxes on their profits.

A memo on the new measures is expected to be presented to Cabinet tomorrow and will be announced alongside advice on how people can save money by reducing their energy use. Cost-of-living crisis triggers VAT cut that will save families €110

Fry Electronics Team

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