A turning point in economic growth

With one day to go before the Chancellor delivers her budget, local Liberal Democrat MPs Wera Hobhouse and Anna Sabine have said she “must deliver real change” in Somerset by cutting electricity bills for households, boosting economic growth, and providing the investment public services desperately need.

Sabine and Hobhouse, both South West Liberal Democrat MPs, say this Budget must be a turning point in delivering real economic growth. They are calling on the Government to take decisive action in tackling the cost of living, saving our high streets and properly funding community assets like the NHS, schools and local councils. Communities cannot be left struggling with overstretched public services and rising costs.

The Cost of Living crisis is worsening, and the Somerset MPs say it must be tackled urgently, calling for the removal of the main green levy (“Renewables Obligation”) from electricity bills. This change would save the average household £90 a year, taking the typical energy bill down to its second lowest level since the energy crisis began in 2022. They argue the Renewables Obligation scheme should instead be funded through a time-limited new windfall tax on big commercial banks. 

They are also urging the Government to negotiate a new customs union with the EU to unlock economic growth and raise more than £25bn a year in additional tax revenue. This stronger economic foundation, they say, is vital if the Government is to provide stable, long-term funding for essential public services, many of which are now “on their knees”.

Wera Hobhouse, Liberal Democrat MP for Bath, said:

“Across the South West, families face soaring bills, businesses are being squeezed, and public services are on their knees. In Bath, I’m particularly concerned about the state of Special Educational Needs and Disabilities (SEND) provision. I regularly hear from both the Council and parents how the current system is failing families, with parents fighting for every scrap of support and children left without the help they desperately need. In this Budget, we urgently need to see the proper, long-term funding required to fix our broken SEND system.”

Mrs Sabine agreed, saying that public services have been “stretched to breaking point”. 

Anna Sabine, Liberal Democrat MP for Frome and East Somerset, added:

“The country has time and again felt let down by the promises of this Labour Government, and this Budget is an opportunity for them to take decisive action and deliver real change that will make a tangible difference to people’s lives. Public services are stretched to breaking point, our healthcare provisions across hospitals, hospices and SEND educational needs, are buckling under the pressure of increased costs with no support. Small businesses are being hammered with additional costs, and too often it is our most vulnerable who are paying the price for poor investment and mismanaged systems. 

“Every day I hear from people across Frome and East Somerset who are struggling to find housing, pay for food, keep their business open and access the health provisions they need. It’s simply not acceptable to leave so many behind and now is the time to make a real investment in our communities and allow Somerset residents to thrive.”

For your information:

Bank windfall tax

The Liberal Democrats have previously called for a time-limited windfall tax on big commercial banks, originally proposed by the IPPR think tank. It would only target the “windfall” interest payments received by commercial banks as a result of the QE-related reserves they hold at the Bank of England. Those interest payments to the banking sector are currently funded by the taxpayer. The tax does not involve any change to the way in which the Bank of England conducts Quantitative Tightening (QT). It would expire when base rate returns to 2%, or when the QT programme concludes – both of which are expected to happen after 2030. IPPR’s proposals can be found here. The bank windfall tax would raise around £30bn in total between November 2025 and April 2030.

Emergency support package

The emergency support package proposed by the Liberal Democrats would be temporary, coming into effect immediately in November 2025 and expiring at the end of the next financial year, in April 2027. It would cost £12bn in total and would be funded by the bank windfall tax.

The package would be made up of two policies:

1. Cutting VAT on hospitality, accommodation and attractions from 20% to 15% for 17 months, as an immediate boost to high streets. According to Liberal Democrat analysis of HMRC figures provided by the Government in a written Parliamentary Question, this would cost around £7.5bn in total between November 2025 and April 2027.

2. Removing the “Renewables Obligation” (RO) levy from people’s energy bills and instead funding it through the bank windfall tax for 17 months. Based on Liberal Democrat analysis of figures published by Nesta (please see page 4 of this policy paper), this would cost £3.2bn a year, equivalent to around £4.5bn between November 2025 and April 2027. By April 2027, the Government should develop a new way of funding RO contracts, implementing Liberal Democrat proposals to move them onto the “Contracts for Difference” model.

Hospitality includes businesses such as pubs, restaurants, bars and cafes. Accommodation includes businesses such as hotels, inns, boarding houses, BnBs, caravan pitches and rented holiday homes. Attractions include businesses such as theatres, cinemas, fairs, amusement parks, concert venues, zoos and exhibitions.

Household savings

The party estimates that the two policies would save UK households an average of £270 in total between November 2025 and April 2027.

Liberal Democrats expect around 50% of the VAT cut for hospitality, accommodation and attractions to be passed on to consumers, delivering an average saving of around £135 per UK household in total between November 2025 and April 2027. 50% pass-through is in line with what happened in the accommodation and food service sector during the 2008 VAT cut [HMRC p86].

According to figures published by Nesta, removing the Renewables Obligation levy would save the typical household £94 a year, or roughly £135 between November 2025 and April 2027. The roughly 2 million households with electric storage heaters would see far greater savings in the region of £250 a year. According to Nesta, the total cost of the policy levy is £3.2bn a year, or around £4.5bn between November 2025 and April 2027. Relevant figures can be found on page 4 of this Nesta policy paper. 

Reducing the typical energy bill by £94 would bring it down from £1,755 currently to £1,661 – its second lowest level since the energy crisis began in 2022 (the energy price cap briefly fell to £1,568 in July 2024).