Posted by: @editor

↑

The government has announced that VAT will be removed from household electricity bills for six months from 1 October, which should save the average household around £45, so it’s hardly transformative, but for heat pump owners it raises a much bigger question... is this the beginning of a serious attempt to rebalance electricity and gas prices or just another temporary sticking plaster?

I think the decision to remove VAT from electricity and not gas bills was driven by two factors. Firstly, not everyone has mains gas whereas most people do have a domestic electricity supply, so in terms of 'cost of living' help, it reaches most everyone. Secondly, there is the premiss of reducing taxation on the clean(er) fuel that they wish to incentive people to switch to, and continuing to tax the FF that they wish to dis-incentivise.

Is it a sticking plaster? Yes. VAT is removed from October to the end of the financial year, so 6 months giving an average saving of £22.50 putting it firmly in sticking plaster territory. What's worse is that it's likely to be entirely swallowed up by Ofgem cap price increases in October, so runs the risk of backfiring politically (you promised help with the cost of living, some breathing space, and my bills have actually gone up). Of course every little helps, but many voters may not see that distinction.

Getting back on topic here, if we take the average gas usage of 9,500kWh used for the Ofgem price cap figures at 7.33p/kWh, we have an annual gas bill of £696.35. Assuming all of this is used for heat with a condensing gas boiler of 90% efficiency, we see 8550kWh heat delivered to the house.

If we compare that with an ASHP of conservative average SCOP of 3.0, would require 2850kWh of electrical input to deliver 8550kWh of heat. Assuming a heat pump tariff is used and an average import price of 20p/kWh, we see an annual cost of £570 (before the VAT reduction). If we are able to achieve a SCOP of 4.0, those costs fall to £427.50, around 40% cheaper.

The nature and continued roll out of CfD scheme means electricity prices are increasingly locked in and thus less susceptible to influence by global events, whereas gas prices continue to be fully exposed. At current pricing, a well installed ASHP with good efficiency is already significantly cheaper to run than a gas or oil boiler. As you are already well aware, design and installation quality are key to low running costs.

For reference, my own ASHP delivers around 9,800kWh of heat per year at a SCOP of around 4, and for the first year when I ran the system without any batteries on the Cosy heat pump tariff, achieved an average import price of 20p/kWh over the winter months. I do not believe there is anything special about my installation - in fact there are a few things that could be improved.

@jamespa Smart move by Burnham, although minor it ticks 90% of the correct boxes and easy to do.
Although will become an irrelevance once the massive implications of power /food shortages and kimi k3 play out.

@old_scientist And for ‘electricity only’ consumers, there is a very delectable skin on this particular custard (yes, I really like the skin on custard!) as all energy will attract the Nil Rate VAT advantage - thus a greater saving on energy costs.😊 Rewards, Toodles.

@papahuhu 

I actually got a bill today so I have a bit more insight into whats going on.

It seems that overall my ratio of peak to off peak hasnt really changed. However my total usage excluding my EV charging has gone up by about 3.5 kWh per day (all off peak). My export on the other hand has gone up per day by almost the same amount. So that equates to a profit of about 15p per day. I have also been credited twice for £1.61 for two charge pack sessions. The minimum they promise you can earn is £12 per month but I think that would not include the extra 15p per day. So I will probably be about £16 up for the month.

Whether that is worth the extra strain on my battery, Im not sure.

@editor Seems to have gone down like a lead balloon locally

Trailed as 45 quid, then everyone realises its only 6 months so that's deliberately misleading. Then everybody (mostly poor) realizes that they use very little power as they can't afford to turn the heating on in the first place so actually will maybe save a tenner or less but MPs who can no longer expense their stable heating, people with fancy Teslas and swimming pools will get a ton more.

Even less amusement in Northern Ireland (where it's not happening)

Should have tackled standing charges first, and definitely shouldn't have trailed a 6 month scheme on a yearly price basis.

Terrible communications, and questionable execution.

@bontwoody It’s not that great is it, given you are loaning them your rather costly hardware. They should share more of this pie with their customers.

Last year they used to credit me an additional circa £3 a session for NOT contributing to the DFS sessions as I was on IOF anyway. 

Posted by: @etchedpixels

↑

@editor Seems to have gone down like a lead balloon locally

Trailed as 45 quid, then everyone realises its only 6 months so that's deliberately misleading. Then everybody (mostly poor) realizes that they use very little power as they can't afford to turn the heating on in the first place so actually will maybe save a tenner or less but MPs who can no longer expense their stable heating, people with fancy Teslas and swimming pools will get a ton more.

Even less amusement in Northern Ireland (where it's not happening)

Should have tackled standing charges first, and definitely shouldn't have trailed a 6 month scheme on a yearly price basis.

 

Terrible communications, and questionable execution.

Whatever changes are made they won't be perfect, not least because each of the 70 million people in the country has their own definition of perfect and most no longer care about anyone other than themselves, at least in part because politicians, particularly in the 80s, have taught them to have that attitude.

Fiddling with vat rates inevitably delivers more cash to those who spend more than it does to those who spend less.  However in percentage terms fiddling with vat rates on essentials is likely to benefit those who spend less much more, because they spend a greater proportion on essentials. 

Vat rate changes easy  and can be implemented quickly and therefore attractive, and also helps those with high consumption due to medical needs and people with resistance electric heating only which predominantly are poorer people.  Furthermore it advances the green agenda.

So as a quick thing to do it's not difficult to see the attractions.  More root and branch reform is certainly needed, but this will inevitably also throw up winners and losers with which not everyone will agree and the media will (totally irrespective of what the changes actually are) represent as bad (a) because for much of the media this suits their political agenda and (b) bad news and scandal sells. 

Put simply there is nothing that can realistically be done that everyone will approve of and whatever is done the media will, for the most part, represent it as bad. 

I cant comment on the communication because I have yet to tease out what the government said from how the self serving media chose to report it.

I presume it doesn't apply to ni because ni partly is bound by EU rules?

Correct NI is bound by the EU VAT floor on energy, although another semi consequence of that is having a 15-20p standing charge.

Removing VAT on things generally does not change the price at all. There's a whole wall of economic studies on that one. Should be different in this case though as there's a bit of leverage on the government side for a short while before it vanishes again in the raised price cap.

Posted by: @etchedpixels

↑

Removing VAT on things generally does not change the price at all. There's a whole wall of economic studies on that one. Should be different in this case though as there's a bit of leverage on the government side for a short while before it vanishes again in the raised price cap.

I can believe that for everything other than things like energy that have price control. 

That said if the vat rate had been increased by the same amount I'm sure the industry would have reacted!  Just like the people who are saying that a 20% cut in business rates for pubs doesn't make a difference, who would doubtless be up in arms if the rates were increased by 20%.

@etchedpixels yeah, it's very misleading, because I read the announcement earlier this week thinking, step on the direction, until I found today it's six months.

The press release says how it is funded for this financial year, it doesn't say that it applies only for this financial year.  That's subtly, but importantly, different.  The action is not necessarily time limited according to the press release, its the the current source of funding that is, leaving space to find funding to continue it at the next budget, or not if there are more comprehensive measures which supercede it, which the press release hints at.  Furthermore it states what is taken off the annual price cap not what effect it will have over any particular period.  Pretty much nothing is ever guaranteed beyond the next budget (due in November) anyway, so Im not sure how it can be any more misleading than estimates of the effects of tax increases extrapolated to a year (or sometimes even 5!) or the headlines that the price cap has increased by £x when, in fact, it is reviewed every 3 months!  Perhaps we need to wait until the actual statutory instrument (or whatever is needed to change VAT rates) is published and we see what happens in November.

The press release also says that 'to ensure that households in NI receive the same support as quickly as the rest of the UK, the NI Executive will receive comparable funding to enable it to support NI Households with the Cost of Living.', so whilst NI households don't get this support they could get something broadly equivalent should the NI Executive choose to do so.

Of course if you want to read it the way you have you can, but its not what the Government actually announced.  Having ascertained the facts which are currently available I cant see anything misleading in the actual press release; if the media have concocted a misleading story then that is their responsibility.  Once the order implementing the cut is published (or located) then we will be able to see whether it actually applies only for six months or is indefinite, at which point we can make an informed judgement!

In  the end though there are three kinds of lies, of which statistics is the third.  This is always the case and gives a lot of flexibility to all parties to spin things how they choose.  Its for this reason that I tend to go to source wherever possible before interpreting anything anyone tells me is true, whichever side of politics they come from or lean towards.  I realise that basing judgements on first party facts as opposed to third party opinion is outdated, but it seems to me to be a sounder way to live one's life. 

FWIW I suspect that the VAT may well be reimposed to avoid the enforced difference to NI, but superseded by something else more comprehensive.  That's certainly what I would do if I were in charge (and based on the limited information I have at my disposal)

I agree, we will find out at the next budget whether the removal of VAT from electricity bills will become permanent, or at least to the end of this parliament.

If it becomes permanent, then I see that as a positive green choice rather than purely a cost of living choice, as they could just as easily use that money to tweak income tax thresholds to help 'working people' keep more of their earnings.