Budget: Lib Dems unveil £14 billion breathing space package to cut energy, transport and hospitality costs

• Liberal Democrats unveil fully funded £14bn emergency package to cut household energy and transport costs and support hospitality for 18 months - saving households £350 on average
• Plans include an Essential Energy Guarantee, 10p fuel-duty cut, cheaper rail and bus fares and pavement EV charging, and a temporary 5p hospitality VAT cut
• Package fully-funded by windfall tax on unearned bank profits, a clawback on energy-network monopolies and additional oil and gas tax receipts triggered by Trumpflation
• Treasury Spokesperson Daisy Cooper warns Chancellor that averting a fresh cost-of-living squeeze will decide whether he passes or fails his first test as Chancellor on October 28th

At the upcoming Budget, the Liberal Democrats will call on the Chancellor to introduce an emergency £14bn breathing space package to cut energy and transport costs and support high street businesses over the next 18 months. The fully funded package would combine an Essential Energy Guarantee with cuts to fuel duty, rail and bus fares, VAT on kerbside EV charging and hospitality VAT.

The Liberal Democrats warned that households face painful price rises in the new year, with the energy price cap expected to rise above £2,000, and a 3p rise in fuel duty is pencilled in for the same month. March will then see the end of the Government's electricity bill VAT cut, a 4.2% rail fare increase, and a further 2p fuel duty hike.

The party's proposed Essential Energy Guarantee would cut average annual electricity and gas bills by £100, alongside additional support for households with children and disabled people.

On transport, the Liberal Democrats are proposing a 10p cut to fuel duty, a 10% cut to rail fares, £1 bus fares and a reduction in VAT on kerbside EV charging to 5%.

The package would also temporarily cut hospitality VAT by five percentage points to 15%, reducing costs for pubs, restaurants and cafés, to bring down the cost of a night out, while supporting struggling high streets.

The £14bn package, saving households £350 on average, would be fully funded through a windfall tax on unearned bank profits arising from the legacy of the Quantitative Easing programme, a clawback on energy network monopolies, and additional oil and gas tax revenues triggered by Trumpflation - avoiding the need for extra borrowing or permanent tax rises.

The party warned that the OBR's living standards forecast will set a definitive test that Chancellor John Healey will either pass or fail on 28th October.

The emergency package comes on the heels of the party's announcement that it would use the growth dividend generated by joining the EU Single Market and Customs Union to raise the tax-free personal allowance to £15,000 and the 40p income tax threshold to £56,000 over five years, giving basic rate taxpayers a £680 tax cut by the end of the next Parliament.

Liberal Democrat Treasury Spokesperson Daisy Cooper MP said:

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.

The Chancellor has a choice. He can stand by as families are hit with yet another cost-of-living squeeze, or tax the huge unearned windfalls enjoyed by the big banks and use that money to give people some breathing space.

Our £14bn emergency package would cut energy and transport costs and give struggling high streets a fighting chance. It would mean cheaper bills, cheaper journeys and a bit more money left over at the end of the month.

People shouldn't have to think twice about taking their children out for a meal or meeting friends at their local pub because the basics have become unaffordable. The Chancellor should use this Budget to put money back into people's pockets and give people the breathing space they're crying out for.

ENDS

Notes to Editors: 

The emergency cost-of-living package would cost a total of £14.1bn from November 2026 until April 2028. This amounts to £5.6bn in 2026-27 and £8.5bn in 2027-28. It consists of:

• An Essential Energy Guarantee: A discount on a set portion of energy for all domestic users, equal to 50% of what Ofgem defines as medium annual usage. Families with children, disabled people and the poorest in society would receive extra discounts. The middle 20% of households by income would save around £100 a year on average. The poorest 20% of households would save around £140 a year on average. The policy was initially proposed by the Joseph Rowntree Foundation. Previous coverage can be found here. The policy would cost a total of £4.3bn across the remainder of 2026-27 and 2027-28.

• Cutting transport costs: Cutting fuel duty by 10p; slashing bus fares to £1; cutting rail fares by 10%; and cutting VAT on public EV charging from 20% to 5%. The government should introduce this package for three months at first, but it should be kept under review and could be extended if the crisis drags on for longer and fuel prices stay high. This would cost £2bn for a three month period. Previous coverage can be found here.

• Cutting VAT on hospitality to 15%: 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 £7.8bn over 17 months. Previous coverage can be found here.

Household savings: The support package would save households £350 on average over 17 months (£150 in the remainder of 2026-27 and £200 in 2027-28). This assumes that 50% of the hospitality VAT cut is passed on to customers.

The support package would be funded by:

• A clawback mechanism on energy network operators: Recovering unearned excess profits made by electricity and gas operator companies. Citizens Advice estimates that these monopoly operators will have seen between £6.3 and £7 billion in unjustified windfall profits by 2028, which would be clawed back. Ofgem mistakenly assumed that network companies' borrowing costs would rise with inflation, but the companies had already locked in their borrowing at historically low fixed interest rates. When inflation spiked, this allowed network operators to pocket the difference. The Institute for Public Policy Research and the Energy Security and Net Zero Select Committee have also called for a clawback mechanism. 
   
• Recycling surplus oil and gas tax revenues: According to independent analysis, the Treasury is on track to bring in an extra £2 billion every three months from VAT on petrol and taxes on the profits of oil and gas firms, due to the rise in fuel prices. This would be used to fund the emergency transport relief on a rolling basis.

• A windfall tax on banks' QE-related profits: Levying a temporary tax on the unearned windfall payments commercial banks receive on their Bank of England reserve balances - a policy mechanism previously modelled by the Institute for Public Policy Research(IPPR). Based on the latest OBR figures, this would raise £7.8bn in total from November 2026 until April 2028. [OBR, March 2026 EFO, Forecast of cash transfers to the APF]

Further information on Liberal Democrat calls to cut income tax can be found here.