Tory leadership race: Rishi Sunak's team attack Liz Truss's plan for 'regressive' VAT cut

Boris Johnson acknowledged the next few months will be difficult

Liz Truss campaigns in Norwich to become Conservative party leader. Getty

Conservative leadership candidate Liz Truss’s campaign is airing details of a possible cut in VAT to address the cost-of-living crisis as she also pushes for increases in defence spending.

Ms Truss is the favourite to win the vote of Conservative party members in the race with Rishi Sunak to become party leader and prime minister.

Mr Sunak's team, who has said he will provide additional support for the most vulnerable, attacked Ms Truss's plans to cut value added tax, saying it would be “regressive” and cost tens of billions of pounds

As the UK reels from runaway inflation, the departing prime minister Boris Johnson said that the winner of the leadership race would announce “another huge package of financial support”.

Mr Johnson acknowledged the next few months will be difficult — “perhaps very tough” — as “eye-watering energy bills take their toll”.

“Next month — whoever takes over from me — the government will announce another huge package of financial support,” he said.

A 5 per cent reduction in VAT across the board is being considered by Ms Truss as one of a series of possible strategies to ease the cost-of-living crisis if she wins the race, according to The Sunday Telegraph.

Her leadership campaign says the plan is a “nuclear” option, the Telegraph quoted an unnamed source as saying, with other options including a 2.5 per cent cut in VAT, from the current standard rate of 20 per cent.

A source in Mr Sunak's team 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 dismissed the idea as “yet another addition to Liz’s spending black hole” — adding to the “existing £60 billion of other unfunded permanent tax cuts … all paid for through borrowing money we don’t have, and risking stoking inflation further”.

The Sunday Times also reported that Ms Truss is considering cutting VAT.

Another option being weighed up by the foreign secretary is a cut to income tax, the paper said, with proposals from allies including increasing the level above which people start paying the levy.

A 5 per cent cut on VAT would save the average household more than £1,300 ($1,527) a year, and cost taxpayers £3.2bn a month, according to analysis by the Institute for Fiscal Studies think tank.

Others supporters of Ms Truss suggested raising the tipping point for the higher rate of 40 per cent and cutting the basic rate below 20 per cent, the paper said.

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

The British government has been facing growing calls to provide immediate financial support to households, with energy bills set to jump to an average of £3,549 a year from October — the latest in a line of above inflation increases.

Soaring energy bills, made worse by the decision to boycott Russian energy imports in response to the conflict in Ukraine, have driven British inflation to 40-year-highs but the government's response has been hampered by the race to replace Mr Johnson that runs until September 5.

Mr Sunak, in an article for The Times on Saturday, said 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, he also acknowledged that providing “meaningful support” would be a “multibillion-pound undertaking”.

On Sunday, Mr Sunak supporter and former Cabinet minister Simon Hart acknowledged the current situation is “frustrating” for people.

But he told Sky News: “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 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.”

Mr Hart later said he would not commit to backing Ms Truss’s planned fiscal event if she wins the keys to No 10.

The government has said it is preparing options on a cost-of-living support package for the next prime minister to consider.

Ms Truss has also vowed to bolster Britain's defences if she is made prime minister, including by pushing ahead with renewing the Trident nuclear weapons system, as she warned “the era of complacency is over”.

She said her “number one priority” as PM would be to keep the nation safe.

“We thought that peace and stability were inevitable — but they aren't,” she said. “The era of complacency is over. We are living in an increasingly dangerous world and our security is under more threat than it has been in decades.

“We need to make sure that Britain has the deterrents it needs to lead the global efforts to tackle aggression from the likes of Russia and other authoritarian regimes.”

Mr Sunak has said he views the Nato defence spending target of 2 per cent of GDP as a “floor and not a ceiling” and noted that spending is set to rise to 2.5 per cent “over time”, but has refused to set “arbitrary” goals.

Speaking at the penultimate leadership hustings in Norwich, eastern England, on Thursday, he said: “If Liz is here, as she probably said in her speech, she will invest 3 per cent of GDP.

“Now, I'm not going to say that, not because I don't believe in investing in our armed forces, of course I do, and my record demonstrates that.

“It's just I don't believe in arbitrary targets when it comes to something as serious as the security of our realm.”