Liz Truss’s emergency tax and spending pledges could cost upwards of £50bn a year, with experts warning they will fail to help the worst-off deal with the rising cost of living.
Truss, the strong favourite to be the next prime minister, has promised to cancel the national insurance rise, scrap a planned increase in corporation tax, spend more on defence, and remove green levies on energy bills for households and businesses – all of which would cost billions. She has also suggested boosting freeports, which would entail tax cuts for business, and mooted an increase in the married tax allowance.
The foreign secretary has said her plans for tax cuts could cost £30bn but economists said the real figure was likely to be considerably higher. A Guardian analysis of Truss’s tax and spending policies during the campaign found the figure could top £50bn a year, while Labour said the Tory leadership campaign was full of “fantasy economics and unfunded announcements”.
Truss is refusing to commit to any increase in benefits or further rebates on energy bills to help the poorest struggling in the middle of the worst cost of living crisis in a generation.
Rishi Sunak, her rival candidate, threw down the gauntlet to Truss on Monday by pledging to provide similar help with energy bills to his last package of measures, amounting to £400 a household and £650 for the most vulnerable – a £15bn overall package.
“This winter is going to be extremely tough for families up and down the country, and there is no doubt in my mind that more support will be needed,” he said.
Truss’s key ally Brandon Lewis repeatedly refused on Monday to commit to any further measures to help the most vulnerable with their bills. The energy price cap is now forecast to rise above £3,000.
Over the weekend, Truss said she would “do things in a Conservative way of lowering the tax burden, not giving out handouts”, although her team later insisted this had been misinterpreted and she could look at further measures.
Truss’s insistence on further tax cuts brought in through an emergency budget in mid-September appears designed to appeal to Tory members, with polls suggesting she is firmly in the lead.
But Dominic Raab, the deputy prime minister and a prominent Sunak supporter, told the Times that her economic prescription added up to “electoral suicide”.
“If we go to the country in September with an emergency budget that fails to measure up to the task in hand, voters will not forgive us as they see their living standards eroded and the financial security they cherish disappear before their eyes,” he wrote.
In one of the strongest attacks yet on Truss by the Sunak campaign, Raab said: “Such a failure will read unmistakenly to the public like an electoral suicide note and, as sure as night follows day, see our great party cast into the impotent oblivion of opposition. The wrong move could prove economically harmful, and politically fatal.”
Sunak had previously described Truss’s tax cuts as a “big bung” for large businesses and the better-off which would do little to help those most in need over the winter.
A source in the Truss camp said: “Truss’s tax cuts are part of a sensible economic plan which will bring debt down within three years. To pay back debt and the interest, you ultimately need growth, which this plan delivers. Higher growth will lead to higher exchequer revenues and subsequently lower debt.”
Stuart Adam, senior research economist at the IFS, said Truss’s tax cuts and spending commitments were very likely to add up to “more than £30bn and could well be more than £40bn” but it was hard to be exact because some of her policies were mooted rather than definite and others were unclear.
He said tax cuts “basically don’t do much for those at the bottom of the distribution who are struggling most to cope” and also highlighted that both candidates had not set out plans for lower spending if they were going to pursue tax cuts. “You can’t permanently do one without the other,” he said.
The Resolution Foundation thinktank said the tax cuts had a big price tag and were “not a serious answer for the current crisis”. It said scrapping the corporation tax rise could cost £19bn, while Treasury figures suggest reversing the national insurance rise would cost around £13bn. The defence spending pledge could cost an extra £10bn a year by 2025-6, while the married tax allowance increase could cost £6.7bn. Taking green levies off bills could cost as much as £11bn although it is not clear whether the Treasury would absorb the cost or scrap some of the schemes.
Ryan Shorthouse, the chief executive of Bright Blue, a liberal conservative thinktank, praised Truss’s overall economic direction of “borrowing now and going for growth, and to reverse some of the tax rises” but said the specifics were “regressive” and “not very well targeted”. He said the spending was “not frightening” in terms of its overall level but he would like to see it better distributed and policies in place to give handouts to help the poorest with cost of living pressures.
The CBI and Gordon Brown called on Monday for Boris Johnson to get Truss and Sunak together to agree further action on the cost of living, but No 10 said it would have to wait until the new prime minister was in place in early September.
Labour’s Rachel Reeves, the shadow chancellor, said people were “worried sick about how they’ll pay their bills, do their weekly food shop and make ends meet”, while the leadership candidates were not coming up with real solutions.
“An economic crisis like this requires strong leadership and bold action – but instead we get fantasy economics and unfunded announcements from the Tories, with nothing to reassure the families and pensioners who need help the most,” she said.
“The Tory leadership candidates are losing credibility with every half-baked, uncosted policy they announce. Labour will strengthen our economy, revitalise our public services and support people through difficult times. Only Labour can offer the fresh start Britain needs.”
