Households set to pay more to Government for energy use despite VAT reduction on electricity and gas bills

Electricity and gas prices have skyrocketed since the autumn of 2020. Photo: Erwin Wodicka

Charlie Weston

Households are set to end up paying more to the Government for their energy use this year despite a cut in VAT that came into effect yesterday .

At the same time as the temporary cut of the VAT rate on electricity and gas bills, the carbon tax is going up on gas, home-heating oil and other solid fuels.

And yesterday also saw customers of Electric Ireland, SSE Airtricity and Panda being hit with double-digit price hikes.

The rise in the carbon tax will add another €19 to the cost of home-heating oil for each 900-litre fill.

This will mean that €103 of the cost of a home-heating oil fill will be accounted for by carbon tax.

Some 600,000 gas customers will see €17 added to the annual cost of the fuel, taking the total carbon tax on residential gas to €93, according to calculations carried out by

Hikes in the tax have also been applied to coal and bales of briquettes.

The tax already adds around 10.5c to every litre of petrol and diesel, having gone up on the night of last October’s budget.

More than one million customers of ESB’s Electric Ireland are being hit with higher electricity and gas hikes from the start of this month.

Electricity is going up by 23pc, with the standing charge rising by 35pc. Over a year this will cost the typical household an extra €300.

SSE Airtricity customers will end up paying an extra €330 a year due to a 24pc rise in electricity prices that came into effect yesterday.

In a bid to soften the blow of sky-rocketing energy price rises, the Government is temporarily cutting the VAT on electricity and gas bills from 13.5pc to 9pc until the end of October.

This will save electricity customers €35, and gas customers €25. People on the fuel allowance are to get a once-off €100 payment from the start of May.

Carbon tax does not apply to electricity, where the PSO levy is applied, and which currently adds almost €59 a year to bills.

However, this is due to be reduced to €0 from October 1.

Despite the cut in VAT on gas and electricity bills, households are still set to pay more in that tax this year than last year due to energy prices sky-rocketing.

This is because the tax is levied as a percentage of the bill, and the higher the bills go the more VAT is taken in by the Exchequer.

Daragh Cassidy of price comparison site said the temporary cut in the VAT rate was “bizarre” as it comes at a time when energy use is lowest.

“The temporary reduction in VAT to 9pc is obviously welcome. However, the timing is a bit bizarre.

“The reduction will come into effect when energy demand in the home usually begins to plummet while it will go back up when it begins to increase again.”

He said households can still expect to be paying more in VAT this year despite the reduction.

“Given that gas and electricity prices have skyrocketed over the past 18 months, households will still be paying more in VAT to the Government each year than they were in 2020.”

Last year a typical household with gas and electricity would have paid €230 in VAT.

This year the VAT bill for the dual-fuel household will be €300.

Electricity and gas prices have skyrocketed since the autumn of 2020.

On average, households are now paying around €800 a year more for their electricity and €600 more for their gas.

And the price of home-heating oil has more than doubled.

Mr Cassidy said that more price hikes later in the year are likely.