Lib Dems call on Chancellor to cut VAT to 17.5% to tackle cost of living crisis

Lib Dem leader Sir Ed Davey has said that cutting the tax by 2.5 percentage points for 12 months would save families £600 on average and would also help boost high street stores who may struggle as wallets are squeezed.

It comes amid warnings that the conflict in Ukraine will only worsen the current crisis, with fears that energy bills could rise yet again this year, on top of the increase coming next month.

Speaking to The Yorkshire Post, Mr Davey said the move was the “obvious one to go for” given the circumstances. He said: “We think it’s the right judgment now because it’s very significant.

"It’s £18bn, so it’s a pretty massive measure, so I think it meets the size of the challenge.

“Faced now with these massive extra increases in heating bills and in motoring costs, we’ve got to do something more radical which is across the board.

“So we’ve been thinking what could have the biggest on cutting people’s prices… and VAT was the obvious one to go for.”

The Treasury has already announced a £200 loan to help cover the increase in energy prices, and a council tax rebate of £150 for households in bands A to D.

When asked whether a 12-month intervention would be enough given the concerns about further price rises in the autumn, Sir Ed said: “We’re dealing with degrees of uncertainty that you can’t manage.” He went on: “VAT, it’s very easy to change and have a big impact very quickly, so that means it’s the right time to use something like this.”

A Treasury spokesman said: “We’re providing over £20bn this financial year and next to help families with the cost of living, including cutting the Universal Credit taper rate to make sure low income families keep more of what they earn, freezing alcohol and fuel duties to keep costs down, and helping households with their energy bills through our £9.1bn Energy Bills Rebate.

“We keep all taxes under review.”