Rishi Sunak’s team have claimed that Liz Truss’ plans to tackle the cost of living crisis by cutting VAT across the board will do little to help those struggling to pay their food bills and benefit substantially the wealthiest households.
The front-runner in the Tory leadership race was accused of considering a “regressive” and “flawed” measure that could cost the Exchequer up to £38bn a year, while the government faces calls to provide more support with rising energy costs.
With the Tory leadership contest entering its final week, a fresh row has erupted over Truss’ “nuclear” option to cut VAT to help those who will see their gas and electricity bills soar. It follows confirmation that the energy price cap will rise by 80% from October in England, Scotland and Wales.
Along with several promised tax cuts, the Sunday Telegraph reported that Truss was considering cutting the general 20% goods and services tax by five percentage points to 15%, the biggest cut in history.
It was said to have been examined by the Treasury as part of the model for Gordon Brown’s response to the 2008 financial crash, when VAT was cut from 17.5% to 15% over a year.
But a source in Sunak’s team said that because VAT was not paid on basic items such as staple foods, the move would do “nothing to help families pay their supermarket bills”.
They called the plan “flawed on many levels” and “regressive”, claiming it will benefit wealthier households with “little or no benefit to lower-income households who will need more help this winter”.
The source added it was “another addition to Liz’s spending black hole”, adding to the “existing £60bn of other permanent unfunded tax cuts… all paid for through a borrowing money we don’t have, and risking further fueling inflation.”
Truss’ team did not dispute that the move was among the options being worked out with her likely new chancellor, Kwasi Kwarteng, if she becomes prime minister on September 6.
While Truss has promised “decisive action” to provide “immediate support” if he wins the race, he made clear earlier in the contest his resistance to “handovers” and has been vague about what form that assistance might take, apart from to reduce green fees. on energy bills and reversing the controversial increase in national insurance.
John Redwood, a former policy chief under Margaret Thatcher who was promoted to a Treasury role under the Truss government, also said more action was needed on energy supply and prices for businesses that ‘face a huge increase in energy bills.
As Boris Johnson’s outgoing government has ruled out making major spending commitments before leaving No 10 in just over a week, a senior Tory MP admitted on Sunday that the situation was frustrating for people.
“Everyone wants to be able to say ‘this is exactly what will be announced if our particular candidate wins,'” said Simon Hart, a former minister and Sunak supporter.
“To be able to do that now, to speculate now on the scope of the challenge, and then come up with a solution is, I think, a little unreasonable.
“Is there going to be a specific number? Are we going to say ‘we’re going to give you this amount of money on September 7’? No, I think it would be irresponsible to do that.
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“What we can say is that, as the Prime Minister has said, there is a package on the way.”
Johnson issued a rallying cry for Britain not to back down in its bid to stop Russia economically with sanctions as punishment for its invasion of Ukraine, admitting that energy bills would be “exciting” this winter and that for many, heat your home “it was”. terrifying”.
“It is Putin’s war that is costing British consumers,” the Prime Minister wrote in the Mail on Sunday. “That’s why your energy bill is doubling. I’m afraid Putin knows it. He likes it. And he wants us to catch up.
“He believes soft European politicians won’t have the stomach for a fight; that this coming winter we’ll throw in the towel, lift sanctions and demand Russian oil and gas.”
Johnson said doing so “would be total madness” and that “colossal sums of taxpayer money are already committed to helping people pay their bills.”
Labor said it “shows how little it understands the shockwave” of the energy price cap price hike.
Pat McFadden, the shadow chief secretary to the Treasury, told Sky News that “for some people it will simply be impossible” to pay their bills.
This article was amended on 28 August 2022. It is not a 5% reduction in VAT that is being proposed, as a previous version said, but a cut of five percentage points.