Ex-chancellor pledges to scrap VAT on energy bills as he trails Liz Truss in Tory leadership polls
Rishi Sunak was on Tuesday night accused of a “screeching U-turn” on tax cuts as he vowed to scrap VAT on energy bills for a year if he becomes prime minister.
In an apparent climbdown, the Tory leadership contender promised to introduce the “temporary and targeted” measure to save £160 on the average household bill as energy prices soar this winter.
His announcement came after polls of party members showed he was trailing leadership rival Liz Truss, who has run on an unashamedly tax-cutting agenda.
Mr Sunak has spent the early part of the campaign claiming his rival’s plans to cut National Insurance and scrap planned corporation tax increases would stoke inflation.
A source close to the Truss campaign said: “It’s good that Rishi has finally woken up and decided to offer something to people struggling with the rising cost of living.
“However, this feels like a screeching U-turn from someone who has spent the last few weeks of the leadership campaign branding everyone else’s tax cuts immoral and fairytales.”
The Foreign Secretary’s allies also pointed out that as recently as February, when he was still chancellor, Mr Sunak had rejected calls to cut VAT on energy bills, saying it would “disproportionately benefit wealthier households”.
Ms Truss has not committed to cutting VAT on energy bills, instead focusing on suspending the green levy. The Sunak camp denied there had been a U-turn, adding that the tax cut was “a tool that was always in our arsenal”.
“We didn’t use it back in spring because the size of the jump of the bills was way bigger, and it wouldn’t have touched the sides,” a source said. “This is a response to latest estimates that suggest the rise might be £100-200 more than anticipated.”
Under a new plan to tackle the cost of living crisis, Mr Sunak said he would scrap VAT for domestic energy users for a year from October, at a cost to the Treasury of £4.3 billion.
He also unveiled plans to reduce the country’s reliance on French ports in order to tackle supply chain problems that push up prices, and tighten benefits rules to get more people off welfare and into work.
His tax-cutting policy came after two polls indicated that he had lost Monday night’s head-to-head debate on the BBC, with one showing 50 per cent of Tory members thought Ms Truss won compared with 39 per cent backing the ex-chancellor.
In another debate on Tuesday night, hosted by the Sun and Talk TV, the pair traded blows on whether it was “morally wrong” to put up taxes or increase borrowing. The debate was cut short when the presenter, Talk TV’s political editor Kate McCann, fainted on stage.
Ms Truss mouthed “oh my God”, and rushed forward to help before the cameras were cut. A TalkTV spokesman later said the presenter was “fine”, but had been advised not to continue by doctors.
Allies of both candidates said there had been a conscious effort to make the debate less fractious than the angry opening showdown on Monday, which was marred by the pair shouting over each other. Mr Sunak had been accused by Ms Truss camp of interrupting and “mansplaining” to her.
Announcing his new policy on Tuesday, the former chancellor said: “Tackling inflation and getting people the support they need to help with the cost of living is critical.
“That’s why, with the price cap expected to rise above £3,000 in October, I will move immediately to scrap VAT on everyone’s domestic energy bills for the next year, saving the average household £160.
“This temporary and targeted tax cut will get people the support they need whilst also – critically – bearing down on price pressures.”
He added: “As chancellor, I knocked £400 off everyone’s energy bill and provided support of £1,200 for the most vulnerable households. This additional VAT cut will help deal with the current emergency.
“I will also begin undertaking major supply side reforms targeted at the rising cost pressures families are facing. That means urgently getting more people off welfare and into work and tackling the supply chain crunch.”
His team said the tax cut would only come in if the price cap rises to more than £3,000 in October. They said his plans would reduce prices overall, and stand in contrast with £55 billion of fiscal commitments Ms Truss has made.
Mr Sunak believes her plans would stoke inflation and increase interest rates and government borrowing.
But in February, he told the Commons: “I know that some in this House have argued for a cut in VAT on energy. However, that policy would disproportionately benefit wealthier households.
“There would be no guarantee that suppliers would pass on the discounts to all customers, and we should be honest with ourselves – this would become a permanent government subsidy on everyone’s bills, a permanent subsidy worth £2.5 billion every year at a time when we are trying to rebuild the public finances.”
On Tuesday, the former chancellor said he would aim to bring down costs by expanding the labour force and reducing the number of people on benefits.
He said he would double the number of hours someone on welfare has to work a week in order to avoid having to look for a full time job from nine to 18 and explore other measures to get people off welfare and into work.
But on Tuesday night, Therese Coffey, the Work and Pensions Secretary and a supporter of Ms Truss, accused Mr Sunak of another U-turn, saying he had blocked her plans to help people on benefits get better jobs by increasing the number of hours they have to work.
“Helping people progress in work by getting better jobs and more hours is a key role of job centres,” she said. “The Department of Work and Pensions will shortly change the rules to ensure people keep looking for extra work until they have at least 12 hours a week with an ambition to increase that in the future.
“DWP had hoped to get this under way earlier this year, but unfortunately was blocked by the former chancellor.”
Mr Sunak said he would work with the UK’s biggest importers to build up trade with Dutch and Danish ports, ending the disruption causing shortages that lead to price increases.
During Tuesday night’s debate, Ms Truss said it was “morally wrong” to raise taxes during a cost of living crisis in an attack Mr Sunak’s policies, but the former chancellor hit back by saying it was “morally wrong” to heap more debt on future generations.
One member of Ms Truss’s inner circle said it was “as expected” that the second head-to-head had taken a more moderate tone, adding there had been efforts to take the sting out of the campaign.
“There’s a fundamental disagreement between them over tax, but they’re broadly on the same page on everything else,” they said of the two leadership candidates.
An insider in Mr Sunak’s camp said this time he was more relaxed about letting the Foreign Secretary “speak at length” about her plans for tax cuts, which he says are unfunded.
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