O’Brien wants lower 9% VAT rate on electricity and gas extended to 2026

Darragh O’Brien wants the lower VAT rate on electricity and gas kept into 2026 to ease pressure on households

Energy minister Darragh O’Brien cautioned that any decision to retain the rate would be made as part of the budget process. Picture: Conor Ó Mearáin / Collins Photo Agency

The lower 9% Vat rate on gas and electricity should be retained in the upcoming budget to avoid further hiking energy prices for consumers, energy minister Darragh O’Brien has said.

The lower rate was originally introduced in 2022 as part of a major cost-of-living package from the Government, with Vat falling from 13.5% to 9%.

Speaking yesterday, Mr O’Brien said the reduction in the Vat rate was a “very important” measure on affordability, and he wanted to see it extended into 2026.

However, he said any decision to retain the rate would be made as part of the budget process.

The Tax Strategy Group has estimated the total cost of retaining the lower Vat rate is €193.3m — €58.2m for gas and €140.1m for electricity.

In previous years, the cut has been extended six months at a time, with the most recent extension coming in April.

Each six-month extension has provided estimated savings of €26.60 on electricity and €20.28 on gas for consumers for the duration of the period.

Price increases

The modest savings have been dwarfed, however, by price increases introduced by the major utility companies.

A number of energy providers have again opted to increase their rates in recent months, with Flogas confirming a hike in variable electricity charges by 7% from next month.

This is expected to increase bills for Flogas electricity customers by €126 annually.

In April, SSE Airtricity hiked electricity bills by 10.5% and gas bills by 8.4%, the latest in a spate of increases since the Russian invasion of Ukraine.

Mr O’Brien said the prices for energy have “levelled off” after a spate of surges in recent years, but conceded that Ireland’s energy costs remain too high.

Households here pay nearly 30% more for electricity than the EU average, costing approximately €350 more annually. Gas prices are approximately 10% above the EU average.

Irish householders are paying the third-most expensive prices for electricity in Europe, behind only Germany and Denmark.

The Dáil has heard that there are more than 300,000 people in arrears on their electricity bills, while more than 175,000 are in arrears on their gas bills.

The minister for energy said this increase was a matter for concern, and anyone in arrears should enter into an arrangement with their provider.

Energy Affordability Taskforce

Mr O’Brien met with the recently-established Energy Affordability Taskforce on Thursday, and said an interim report would be provided to the Cabinet ahead of the budget in October.

However, he ruled out the prospect of energy credits making a return, saying there was a very significant cost associated with the measure.

“That was €3.5bn and that was in the teeth of the cost-of-living crisis, particularly post the outbreak of the war in Ukraine,” Mr O’Brien said.

He said the costs for one-off payments were very significant, and reduced the amount of money the Government could funnel into medium- and long-term measures to make energy more affordable.