Rishi Sunak is considering a reduction in the 5pc VAT rate on household energy bills, in a move that would reduce the pain of soaring prices for consumers.

The price cap rose more than 12pc this month amid global shortages and surging wholesale gas prices.

More than a dozen energy suppliers have gone bust since August.

Energy is already taxed at less than the 20pc VAT rate and the Government is unlikely to be keen to cut tax on fossil fuel use ahead of the looming COP26 conference. However, the Chancellor is looking at the measure, amounting to a tax break of up to £1.5bn a year, due to pressures on the cost of living, the Financial Times reported.

Inflation is already above 3pc and is expected to rise to more than 4pc in the coming months, more than double the Bank of England’s 2pc target as the economic recovery combines with supply shortages of manufactured goods around the world to force up prices.

Senior Conservative MPs have been calling for the change to VAT to ease the cost for families this winter.

Robert Halfon, known for his successful campaign to keep fuel duty frozen, said it would be a good use of Brexit freedoms to set VAT rates.

“A real advantage of leaving the EU is that we now control VAT rates, which wasn’t possible in the past,” he told The Telegraph last month. “It will make a real difference, it is around £60 per year on average and it is more as the price goes up.”

Boris Johnson and Michel Gove cited the ability to cut VAT as a key benefit of Brexit during the referendum campaign, arguing that poorer households spend three times more on energy as a share of their incomes.

“When we Vote Leave, we will be able to scrap this unfair and damaging tax,” the now-Prime Minister wrote in 2016.

Mr Halfon said last year’s temporary VAT cut for the hospitality industry set a precedent.

Cutting tax was “a much better way – a Conservative way” of helping struggling families “rather than plonking on subsidies”, the MP said. “If they cannot do it completely, because there are financial problems with £2.2 trillion of debt, they can at least cut VAT for the disadvantaged and lower paid families.”

Abolishing VAT on bills completely would cost the Treasury in the region of £1.6bn, economists at the Resolution Foundation estimated in 2019.

Another Tory MP, Sir Christopher Chope, has also raised the idea in the Commons.

“Why don’t we reduce VAT on fuel, as a temporary measure?” he said. “We did it for the hospitality industry which was badly affected Covid 19, why don’t we abolish VAT for consumers on fuel now?”