Liz Truss’s plans to tackle the cost of living crisis by slashing VAT across the board will do little to help those struggling to pay food bills and benefit richer households substantially more, Rishi Sunak’s team has claimed.
The frontrunner in the Conservative leadership race was accused of considering a “regressive” and “flawed” move that could cost the exchequer up to £38bn a year, while the government faces calls to offer more support with rising energy costs.
With the Tory leadership contest entering its final week, a fresh row erupted over Truss’s “nuclear” option of cutting VAT to help those who will see their gas and electric payments soar. It follows confirmation that the energy price cap will rise by 80% from October in England, Scotland and Wales.
Alongside several pledged tax cuts, Truss was reported by the Sunday Telegraph to be considering reducing the headline levy of 20% on goods and services by 5% – the largest ever reduction.
It was said to have been examined by the Treasury as part of modelling on Gordon Brown’s response to the 2008 financial crash, when VAT was cut from 17.5% to 15% for a year.
But a source in Sunak’s team said given 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 would benefit richer households with “very little to no benefit for lower income households who will need the most help this winter”.
The source added it was “yet another addition to Liz’s spending black hole” – adding to the “existing £60bn of other unfunded permanent tax cuts … all paid for through borrowing money we don’t have, and risking stoking inflation further”.
Truss’s team did not dispute the move was among options being drawn up with her likely new chancellor, Kwasi Kwarteng, if she becomes prime minister on 6 September.
While Truss has promised “decisive action” to deliver “immediate support” if she wins the race, earlier in the contest she made clear her resistance to “handouts” and has been vague about what form such assistance might take – aside from slashing green levies on energy bills and reversing the controversial national insurance hike.
John Redwood, a former head of policy for Margaret Thatcher touted for a role in the Treasury under a Truss premiership, also said more action was needed on energy supply and prices for businesses facing a huge rise in energy bills.
With Boris Johnson’s outgoing government having ruled out making any significant spending commitments before he leaves No 10 in just over a week, a senior Tory MP admitted on Sunday the situation was frustrating for people.
“Everybody wants to be able to say ‘this is precisely what’s going to be announced should our particular candidate win’,” said Simon Hart, a former cabinet minister and Sunak supporter.
“To be able to do that now, to speculate now about what the extent of the challenge would be and then come up with a solution is, I think, slightly unreasonable.
“Is there going to be a specific number? Are we going to say ‘we are going to give you this amount of money on 7 September 7’? No, I think that would be irresponsible to do that.
“What we can say is – like the prime minister has – there is a package on its way.”
Johnson issued a rallying cry for Britain not to relent in its attempt to cripple Russia economically with sanctions as punishment for the invasion of Ukraine, admitting energy bills would be “eye-watering” this winter and that for many, heating their home was “already frightening”.
“It is Putin’s war that is costing British consumers,” the prime minister wrote in the Mail on Sunday. “That is why your energy bill is doubling. I am afraid Putin knows it. He likes it. And he wants us to buckle.
“He believes that soft European politicians will not have the stomach for the struggle – that this coming winter we will throw in the sponge, take off the sanctions and go begging for Russian oil and gas.”
Johnson said doing so “would be utter madness” and that “colossal sums of taxpayers’ money are already committed to helping people pay their bills”.
Labour said it “shows how little he understand the shock wave” of the energy price cap price rise.
Pat McFadden, the shadow chief secretary to the Treasury, told Sky News “for some people it will simply be impossible” to pay their bills.
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