Conservative leadership candidate Rishi Sunak said on Tuesday that he would scrap VAT on all domestic energy bills next year if he becomes the prime minister.
Sunak, who has criticised his opponent Liz Truss for promising unfunded tax cuts that he said will worsen inflation, was accused of performing a U-turn, but his supporters defended the former chancellor, saying his tax cut would not add to inflation.
During a televised debate with Truss on Tuesday morning, Sunak appeared to be open to immediate tax cuts for the first time since he joined the race, saying he had always said he'd “do more as the situation demands it.”
“If it looks as it does look likely now that energy bills are even higher than we thought, and of course, I as prime minister would come back and do more to help people through because that’s what I’ve done for the last couple of years,” Sunak said, referring to the Treasury’s support schemes during the COVID-19 pandemic during his chancellorship.
He announced later on Tuesday night that “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.”
In his “winter plan” to tackle inflation and the cost-of-living emergency, Sunak also said that he will “begin undertaking major supply-side reforms targeted at the rising cost pressures families are facing,” adding, “That means urgently getting more people off welfare and into work and tackling the supply chain crunch.”
Under his new plan, Sunak would expand the labour force by tightening up the rules on out-of-work benefits, doubling the number of hours someone on welfare has to work a week in order to avoid having to look for a full-time job.
He would also look at new incentives to support inactive older workers to return to the labour market, and would reduce the UK’s dependence on French ports.
Sunak said that he would work with Britain’s biggest importers to build up trade with Dutch and Danish ports, ending the disruption that is causing the shortages and the price increases.
Supporters of Truss accused Sunak of taking U-turns on policies he previously opposed.
Speaking to Times Radio on Wednesday, Business Secretary Kwasi Kwarteng said Sunak “was the person who said the VAT cut would disproportionately benefit rich families and now he’s saying that a VAT cut on energy bills is the right thing.”
“He was saying that tax cuts were a fairytale, now he is proposing an unfunded tax cut,“ Kwarteng said, suggesting Sunak changed his position under pressure to ”get out on the front foot and interrupt [Truss].”
Work and Pensions Secretary Therese Coffey suggested that Sunak previously blocked welfare change.
“DWP [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,” Coffey said on Tuesday, adding that the department had “hoped to get this underway earlier this year, but unfortunately was blocked by the former chancellor.”
But Transport Secretary Grant Shapp defended Sunak, saying his £4.3 billion policy is sensible as it would not add to inflation.
“The thing is, with this particular cut, what it does not do is add to inflation. In fact in the short term it would be deflationary because people’s costs would reduce, in the medium term it would not have an impact on the consumer prices index,” he told ITV’s Good Morning Britain.
Shapps also rejected that Sunak’s new plan was a “flip-flop,” saying the former chancellor had “produced £37 billion of support, about £1,200 to the hardest-up households already.”
The government in April increased the rate of national insurance by 1.25 percent, predicting the tax rise will raise £39 billion ($51 billion) over the next three years to help reduce the pandemic-induced backlog in the National Health Service (NHS) and reform adult social care for the long term.
On July 6, it announced a raise in the national insurance threshold, meaning workers with the lowest income will pay less or no national insurance—a 6 billion tax cut according to the government’s estimation.
Sunak resigned as the chancellor on July 5, citing fundamental economic policy differences between him and Prime Minister Boris Johnson.
Sunak and Truss also clashed over the corporation tax rate and answered questions about how to reduce the NHS backlog, but the debate was cut short after the moderator, Talk TV political editor Kate McCann fainted on stage.
The network later said McCann was “fine,” but was given medical advice that the debate shouldn’t continue.
