Pressure mounts on leadership candidates to tackle cost of living as Sunak brands Truss' VAT plans 'regressive'

28 August 2022, 22:46 | Updated: 28 August 2022, 22:54

Rishi Sunak and Liz Truss are falling under increasing pressure to tackle the cost of living crisis
Rishi Sunak and Liz Truss are falling under increasing pressure to tackle the cost of living crisis. Picture: Alamy

By Daisy Stephens

Pressure is mounting on the two remaining Tory leadership candidates to tackle the UK's worsening cost of living crisis, after Rishi Sunak warned Liz Truss' plan to cut VAT was "regressive" and would cost tens of billions of pounds.

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An across-the-board VAT cut is one of a series of possible strategies to ease the cost of living crisis being drawn up by the Treasury for the new prime minister to look at when they take office, according to The Telegraph.

The newspaper said the 20 per cent headline rate of VAT could be cut by up to 5 per cent, saving the average household more than £1,300 per year.

But a source from Rishi Sunak's campaign said this would be "incredibly regressive" and cost north of £30 billion.

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The Times also reported that Ms Truss is considering slashing VAT as part of an emergency package to help households cope with rising prices.

A Treasury spokesperson said the department is making the "necessary preparations" to ensure the next government has options to deliver extra help "as quickly as possible".

Liz Truss is reportedly considering an across-the-board VAT cut
Liz Truss is reportedly considering an across-the-board VAT cut. Picture: Alamy

The UK has been facing an escalating cost of living crisis, driven in part by soaring energy bills.

On Friday the energy price cap was hiked from £1,971 to £3,549, leaving already financially-squeezed Brits facing potentially tough choices between heating and eating in the winter.

Boris Johnson said over the weekend that whoever succeeds him in No 10 would announce "another huge package of financial support".

The outgoing PM hinted at the scale of the options to ease the burden being weighed up for either Ms Truss or Mr Sunak to consider, as he insisted "we must and we will help people through the crisis".

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Read more: Hundreds gather at Ofgem HQs to protest 'catastrophic' energy price hike

In an article for Mail+, Mr Johnson acknowledged the next few months will be difficult - "perhaps very tough" - as "eye-watering" energy bills take their toll, but he forecast the UK will emerge "stronger and more prosperous (on) the other side".

He said "colossal sums of taxpayers' money" had already been committed to assisting people with their bills.

But he added: "Next month - whoever takes over from me - the Government will announce another huge package of financial support."

Matthew Wright on reports Liz Truss is considering cutting VAT

Environment secretary George Eustice said both leadership candidates had already set out "some specific things" they would do to ease the strain, but argued it was right that whoever secures the keys to No 10 would "want to look at all of the options properly costed" once they started in the role.

But regulator Ofgem warned the Government on Friday it must act urgently to "match the scale of the crisis we have before us".

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Mr Sunak has already said he will provide additional support targeted at the most vulnerable.

He reiterated this in an article for The Times on Saturday, arguing efforts should be focused on low-income households and pensioners, with help delivered through the welfare system, winter fuel and cold weather payments.

He said it is "right to caution against providing definitive answers before getting into Downing Street", as it is "responsible" to first have "full command of the fiscal situation".

However, the former chancellor acknowledged that providing "meaningful support" would be a "multibillion-pound undertaking".

Rishi Sunak has previously accused Ms Truss of 'fairytale economics'
Rishi Sunak has previously accused Ms Truss of 'fairytale economics'. Picture: Alamy

Ms Truss has promised "decisive action" to deliver "immediate support" if she wins the contest.

But she has so far been vague about what form this assistance might take besides slashing green levies on energy bills and reversing the controversial national insurance hike.

She has argued it is not "right" to announce her full plan before the contest is over or she has seen all the analysis being prepared in Whitehall.

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Chancellor Nadhim Zahawi has declared he is working "flat out" to draw up options for a plan of action for the next prime minister so they can "hit the ground running" when they take office in September.

In an interview with The Daily Telegraph, he said he was exploring ways to ensure "we help those who really need the help".

"My concern is there are those who aren't on benefits," he said.

"If you are a senior nurse or a senior teacher on £45,000 a year, you're having your energy bills go up by 80% and will probably rise even higher in the new year - it's really hard.

"If you're a pensioner, it's really hard. So Universal Credit is a really effective way of targeting, but I'm looking at what else we can do to make sure we help those who really need the help. We're looking at all the options."

'Liz Truss may find her policies are undeliverable'

The Treasury spokesperson said: "We know people are concerned about rising prices, and that's why we've introduced £37 billion help for households, targeted at the most in need.

"We are also making the necessary preparations to ensure a new government has options to deliver additional support as quickly as possible, as the Chancellor has made clear.

"And as the Prime Minister has made clear, no major fiscal decisions will be taken until the new prime minister is in post."

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