Lib Dems say households could save £350 under £14bn cost-of-living package
The Liberal Democrats say their proposed £14.1bn cost-of-living package could save households an average of £350 over 17 months, but the estimate depends partly on businesses passing on the benefit of a proposed VAT reduction to customers.
The proposals include a temporary cut in VAT for hospitality businesses, measures to reduce energy bills and a package of transport measures. The party wants the Chancellor to consider them ahead of the Budget on 28 October.
Daisy Cooper, the Liberal Democrats’ Treasury spokesperson, said families were facing pressure from rising costs and reduced support.
Daisy Cooper, Liberal Democrat Treasury spokesperson: Families are facing a brutal double whammy of rising bills and disappearing support. Energy costs are set to go up again, filling up the car keeps getting more expensive, and household budgets are being squeezed from every direction.
How the £350 saving is calculated
The Liberal Democrats estimate that households could save an average of £350 through three main elements of the package:
- Hospitality VAT reduction: £140. A proposed cut in VAT from 20% to 15% for 17 months.
- Energy measures: £140. Savings attributed to the party’s proposed Essential Energy Guarantee.
- Transport measures: £70. Savings from proposed reductions in fuel duty, bus fares, rail fares and VAT on public electric vehicle charging.
The figures are estimates supplied by the Liberal Democrats and rounded to the nearest £10. They are not guaranteed savings for every household.
The hospitality estimate is particularly dependent on how businesses respond. The party’s calculation assumes that businesses pass on 50% of the benefit of the VAT reduction to customers through lower prices.
The Liberal Democrats base that assumption on HMRC analysis of the VAT reduction introduced in 2008, which found that hospitality businesses passed on 52% of the cut.
However, the amount customers actually save would depend on how individual businesses adjust their prices. A reduction in VAT does not automatically mean that the full tax saving will be reflected in customer bills.
Energy and transport proposals
The party says its proposed Essential Energy Guarantee would help households with energy costs. It cites analysis from the Joseph Rowntree Foundation suggesting that households in the middle 20% of incomes could save around £100 a year on average, with larger savings for the poorest households.
The package also includes a proposed 10p cut in fuel duty, £1 bus fares, a 10% reduction in rail fares and a reduction in VAT on public electric vehicle charging from 20% to 5%.
The £70 transport saving in the overall household estimate is based on three months of measures, according to the party’s response to questions about its calculations. The initial measures would run for three months and would be subject to review, rather than being assumed to continue throughout the full 17-month period.
How would the package be funded?
The Liberal Democrats put the overall cost of the package at £14.1bn between November 2026 and April 2028. They estimate that £5.6bn would be required in 2026-27 and a further £8.5bn in 2027-28.
The party proposes funding the measures through a windfall tax on banks’ profits linked to quantitative easing, recovering what it describes as excess profits made by energy network operators, and additional tax receipts associated with higher oil and gas prices.
The Liberal Democrats estimate that a tax on banks’ quantitative easing-related profits could raise £7.8bn. They put the potential recovery from energy network operators at between £6.3bn and £7bn by 2028.
The party also points to additional tax receipts from petrol VAT and oil and gas taxation as a source of funding for emergency transport support, which it says could be reviewed on a rolling basis.
These are the party’s own estimates and funding proposals. Their delivery would depend on the measures being implemented and the revenue raised matching the projected figures.
Local businesses and households
Tom Gordon, Liberal Democrat MP for Harrogate and Knaresborough, said the proposals should put money back into household budgets while helping local businesses.
Tom Gordon, Liberal Democrat MP for Harrogate and Knaresborough: This budget should be about putting money back in your pockets. The Lib Dem package would save households an average of £350 on average, cut heating bills, get people moving and give hospitality a boost.
I’ve listened to our local businesses. They’ve been hammered over the last few years, our budget proposal and that crucial VAT cut will give Harrogate and Knaresborough’s high streets a fighting chance.
Gordon’s office confirmed that a hospitality round table and a survey held earlier in the year involved around 70 businesses in total, with VAT emerging as a common concern.
The information supplied by his office did not identify individual businesses involved in the consultation or provide a specific estimate of how much local hospitality businesses or households could save under the proposed package.
The £350 figure is a national estimate from the Liberal Democrats, rather than a calculation of the likely savings for households in Harrogate and Knaresborough. The hospitality element also assumes that businesses pass on half the benefit of the proposed VAT reduction to customers.
Proposals ahead of the Budget
The Liberal Democrats are calling on the Chancellor to consider the package at the Budget on 28 October. The measures are party proposals and are not current government policy.