LIZ Truss is considering a “nuclear” five per cent VAT cut to combat the rising cost of living, it is claimed.
The move is reportedly one of a series of possible strategies being drawn up by the Treasury for the new PM to look at when they take office.
Liz Truss is reportedly considering a five per cent VAT cut
Ms Truss, frontrunner to succeed Boris Johnson, previously insisted she wouldn’t make any decisions on financial support until after the end of the Tory leadership contest.
However, the foreign secretary is understood to have discussed a hefty VAT cut across the board with her top advisers and has not ruled one out, according to SEday Telegraph.
She has also promised to take “decisive action” to deliver “immediate support” if she wins.
Slashing the 20 per cent headline rate of VAT by five per cent – the largest ever reduction – would save the average household more than £1,300 a year.
It would provide much-needed help as energy bills soar by 80 per cent this winter following Friday’s price cap increase, and cost taxpayers £3.2billion a month.
A source close to the discussions, believed to centre around Gordon Brown‘s response to the 2008 financial crisis, described the steps as “the nuclear option”.
Rishi Sunak‘s team subsequently warned that cutting VAT so drastically would be “regressive” and cost upwards of £30billion.
Separately, SEday Times reported that Ms Truss is considering slashing VAT as part of an emergency package to help households cope with rising prices.
Another option being weighed up is a cut to income tax, the paper said, with proposals from allies including increasing the level above which people start paying the levy.
Others in the Truss camp have suggested raising the tipping point for the higher rate of 40 per cent, and cutting the basic rate below 20 per cent, it added.
Parallel plans are reportedly being drafted for Covid-style relief packages for businesses.
This could include a significant temporary reduction in VAT for the hospitality, tourism and agriculture sectors.
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”.
It comes after Mr Johnson said that whoever succeeds him in No 10 would announce “another huge package of financial support” as Britain faces sky-high costs this winter.
The outgoing PM hinted at the scale of the options to ease the burden being teed up for either Ms Truss or Rishi Sunak to consider, as he insisted “we must and we will help people through the crisis”.
Chancellor Nadhim Zahawi has suggested people earning around £45,000 per year could be among those struggling to cope with soaring living costs as the energy price cap is increased again.
Regulator Ofgem warned the Government on Friday that it must act urgently to “match the scale of the crisis we have before us” as Britain faced the news that the average household’s yearly bill will rise from £1,971 to £3,549.
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