Question to the HM Treasury:

To ask the Chancellor of the Exchequer, if he will make an estimate of what the tax revenue will be from VAT levied on domestic heating bills in the 2022-23 financial year.

HMRC publishes estimates of the Exchequer cost of tax reliefs, see https://www.gov.uk/government/statistics/main-tax-expenditures-and-structural-reliefs. The estimated cost of non-structural tax reliefs (December 2021) VAT table shows that the cost estimate for the Reduced Rate of VAT on supplies of domestic fuel and power in 2021-22 was £5,200 million. This represents the cost of the 5 per cent Reduced Rate compared to the Standard Rate of 20 per cent, a relief of 15 per cent. The revenue received at the Reduced Rate may be estimated at 5/15ths of the figure of £5,200 million, or £1,700m (rounded).

This estimate does not reflect most of the recent rise in domestic energy prices. The next update of HMRC’s tax relief cost estimates is scheduled for publication on 12 January 2023, and will provide estimates for the 2022-23 financial year.

The rise in household energy costs in 2022-23 has reduced overall VAT receipts. This is because higher spending on energy bills, which are taxed at a lower rate of 5 per cent, shifts consumption away from other goods and services that are on average taxed at higher VAT rates. For further explanation, see paragraph 3.38 of the Office for Budget Responsibility’s March 2022 Economic and Fiscal Review: Economic and fiscal outlook - March 2022 (obr.uk)