Liz Truss Considering "Nuclear" Tax Cuts To Help With Cost Of Living Crisis
Liz Truss is said to be consider cuts to VAT and income tax to help with the cost of living crisis (Alamy)
Cuts in VAT and income tax are reportedly among the measures being considered by Liz Truss if she becomes prime minister next month to help tackle the growing cost of living crisis.
The frontrunner in the Conservative leadership contest has made championing the case for tax cuts to help tackle rising bills the central pillar of her campaign, while her competitor Rishi Sunak has promised more targeted measures for the most vulnerable while keeping tax at its current level.
On Friday, energy regulator Ofgem confirmed that the annual price cap for the average household would be £3,549 from October. Further rises are expected in January and April, with predictions that bills could rise over £6,000 annually.
According to the Sunday Telegraph, Truss is considering the “nuclear option” of cutting VAT by up to 5 per cent if she gets into Number 10, which officials believe could save the average household £1,300 a year, citing analysis by the Institute for Fiscal Studies.
A source close to the Truss campaign told the Telegraph: “Cutting VAT is the nuclear option. They [the Treasury] have talked about the Gordon Brown approach that he took at the time [of the global financial crisis], when it looked as though consumer confidence was falling.
“They are talking about the last big economic shock that hit the whole economy and consumers in 2008, and the Treasury’s response to that.”
Meanwhile, the Sunday Times reports that changes to income tax could also be on the cards, with adjustments to personal allowance – the level at which people begin paying – ahead of schedule.
Workers currently pay income tax on any earnings above £12,570.
Truss, who is widely expected to become prime minister when the Conservative leadership contest concludes on 5 September, has spent the campaign pledging to cut taxes.
However, amid predictions that the cuts will not touch the sides of rising household costs, she has faced criticism for the lack of detail thus far on any more interventions she is planning to help with rising energy bills and inflation.
The scale of the oncoming crisis has already forced Truss to concede that she will "ensure people get the support needed", but she is yet to be forthcoming with policy plans.
Rising bills will be the most immediately pressing issue in the next Prime Minister’s inbox, with millions more households expected to be in fuel poverty by the new year.
One former Cabinet minister told PoliticsHome they detected a “squeamishness” from Truss about utilising the mechanisms of the state to offer more help, and “not wanting to offend the instincts of a lot of Conservative MPs”.
They said her “comment about handouts was unhelpful”, and “smacks of a knee-jerk Conservative response to any suggestion of helping people in financial difficulty”.
“I think there's this wider point about Liz Truss' campaign, which is essentially an argument for a smaller state when we are going to be thrown into a set of circumstances where the state is going to have to play an important role,” they continued.
This weekend Chancellor Nadhim Zahawi predicted that people earning as much as £45,000 a year will be among those struggling with soaring costs. He told the Daily Telegraph that he is looking at ways to make sure the government "help those who really need the help” but “my concern is there are those who aren’t on benefits”.
He explained: “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 per cent and will probably rise even higher in the new year.
“It’s really hard. If you’re a pensioner, it’s really hard.”
PoliticsHome provides the most comprehensive coverage of UK politics anywhere on the web, offering high quality original reporting and analysis: Subscribe