The tax cuts Liz Truss and Rishi Sunak are promising as they prepare for PM race crunch week

Liz Truss and Rishi Sunak face off
The Tory leadership hopefuls will take part in another showdown in Exeter on Monday. Credit: PA

Rishi Sunak and Liz Truss are poised to go head-to-head in a hustings with Tory members in their latest leadership race showdown.

The rivals are each seeking to woo the party faithful with a policy bonanza as they head into a crucial week in the race for No 10.

Promises of tax cuts have again shot into sharp focus in the contest to become the UK's next prime minister as the leadership hopefuls take their campaigns to Exeter on Monday evening.

With postal ballots beginning to drop on members’ doorsteps on Monday, Mr Sunak is under pressure to overhaul his campaign as polling among the group suggests he is lagging behind Ms Truss.

In a last-ditch effort to win over party members before they start voting, Mr Sunak attempted to shake off his image as the tax-hiking former chancellor by promising the “biggest income tax cut since Margaret Thatcher’s government” as part of his "radical vision" for the economy.

Mr Sunak praised Ms Truss’s “booster” economic approach while implying that his “doomster” predecessor in the Treasury subscribed to the “status quo” and a “stale economic orthodoxy”. Mr Sunak laughed off the suggestion he was endorsing Treasury orthodoxy.

Ms Truss's campaign gained further momentum in recent days with the endorsement of Nadhim Zahawi - the latest of several party heavyweights to get behind the frontrunner.

The former chancellor batted off suggestions his campaign is waning saying he feels "very confident" that there's not only "enormous support" but in fact, "the most support in the Parliamentary party" for his candidacy, adding that he topped the ballots in every round of the Parliamentary stage of this process.

What have Rishi Sunak and Liz Truss said about tax cuts?

Mr Sunak has committed to taking 4p off income tax within seven years if he becomes prime minister, in a move immediately branded as a “flip-flop” by allies of Ms Truss after weeks of labelling her plans for sweeping tax cuts as “comforting fairy tales”.

The former chancellor’s plan builds on his previously announced 1p cut to income tax in April 2024.

Cutting the basic rate from 20p in the pound to 16p would amount to a 20% tax reduction, the largest cut to income tax in 30 years. But it won't happen until inflation has been brought under control.

The ex-chancellor vowed to cut income tax by 20% as part of his 'radical' vision for the economy after inflation is brought down

"That is one of the most far-reaching cuts to income tax that we’ve seen," Mr Sunak told broadcasters on Monday.

"We’ll do that responsibly over time, continuing to reduce our borrowing, and we’ll do it by growing the economy, taking advantage of our Brexit freedoms and getting our businesses to invest more and innovate more through the tax reforms that I am going to put in place."

Meanwhile, Ms Truss has promised around £30 billion of tax cuts within weeks of taking office if she wins - paid in part by more borrowing - as part of a package to help people struggling with the rising cost of living.

The foreign secretary has promised to tackle economic orthodoxy and overcome resistance from the Treasury to implement her tax-cutting plans.

"The tax cuts I'm talking about will be delivered on day one because we have an immediate issue that families are struggling with the cost of fuel, with the cost of food," Ms Truss told broadcasters on a campaign visit in Devon.

"That's why I will reverse the increase in National Insurance. I'll also have a temporary moratorium on the green energy levy to cut fuel bills."

'If you put taxes up too high it chokes off investment, it chokes off growth and it leads to bad outcomes – a recession'

She warned Mr Sunak’s plan to increase corporation tax would stifle growth and trigger a recession.

“What we know is if you put taxes up too high it chokes off investment, it chokes off growth and it leads to bad outcomes – ie. a recession," she added.

“You know what a recession means, it means people losing their jobs, it means a lack of opportunity, it means more difficulties with the cost of living.

“We have to avoid that, we need to get growth and that’s why it’s important that we keep taxes low.”

Mr Sunak called his policy “radical” yet “realistic” and listed principles he would never compromise on, in a thinly veiled swipe at Ms Truss.

“Firstly I will never get taxes down in a way that just puts inflation up. Secondly I will never make promises I can’t pay for. And thirdly I will always be honest about the challenges we face," he said.

“Because winning this leadership contest without levelling with people about what lies ahead would not only be dishonest, it would be an act of self-sabotage that condemns our party to defeat at the next general election and consigns us to a long period in opposition”.

But critics noted that the time frame for Mr Sunak's tax reduction – with the deadline possibly as late as December 2029 – means it does not help families amid the current cost-of-living crisis.

Chief Secretary to the Treasury Simon Clarke, who is backing Ms Truss, said: “Liz will cut taxes in seven weeks, not seven years.”

A Truss campaign source added: “It’s only a shame he didn’t do this as chancellor when he repeatedly raised taxes.

“He has also made it conditional on getting growth first – knowing full well that his corporation tax rises are contractionary.

“The public and Conservative Party members can see through these flip flops and U-turns.”

Chancellor of the Exchequer Nadhim Zahawi is due to have meetings about how an energy support scheme can be rolled out in NI Credit: Kirsty O’Connor/PA

Mr Sunak previously faced accusations of a U-turn when he last week vowed to temporarily slash VAT on energy bills.

The move seemingly failed to give him any significant boost in surveys of Tory grassroots since, with the ex-chancellor admitting to The Sunday Telegraph he was “playing catch-up” to his rival.

In declaring his support for Ms Truss, Mr Zahawi wrote in The Daily Telegraph: “Liz understands that the status quo isn’t an option in times of crisis…

“We need a ‘booster’ attitude to the economy, not a ‘doomster’ one, in order to address cost-of-living woes and the challenges on the world stage.

“Liz will overturn the stale economic orthodoxy and run our economy in a Conservative way.”

The endorsement by Mr Zahawi, a former leadership rival who had earlier indicated he would not publicly back a contender, followed that of former Northern Ireland secretary Brandon Lewis and party senior Tory Tom Tugendhat.

'You have to remember in the parliamentary stage of this contest, I topped the ballot in each and every round with more support from MPs than any other candidate'

Meanwhile, Ms Truss insisted she was running a “positive” bid to become prime minister as allies distanced her campaign from Nadine Dorries’ decision to retweet a mocked-up image of Rishi Sunak stabbing Boris Johnson in the back.

Culture Secretary Ms Dorries, a high-profile supporter of Ms Truss, shared a doctored image on Twitter that portrayed Mr Johnson as Julius Caesar with Mr Sunak as one of the assassins.

A string of Conservative MPs – mostly supporters of Mr Sunak – quickly condemned Ms Dorries and branded the attacks on the former chancellor as “dangerous” in the wake of the murder of Sir David Amess.

Asked about Ms Dorries’ actions, Ms Truss said: “I’ve taken Twitter off my phone for the duration of this campaign.

“I’ve been very clear with all of my team, I’m running a positive campaign. This is about growing the economy, it’s about unleashing the potential right across the UK.”

Mr Sunak’s bid for the premiership was given a boost by the endorsement of Damian Green, the chair of the One Nation group of Conservative MPs, who said he trusted the former chancellor to “unify the party” and “conjure up a solution” to crises.

What else have the rivals pledged?

Ms Truss’s latest policy announcement focused on farming, which she vowed to “unleash” from EU regulations in order to improve the nation’s food security.

The Foreign Secretary also promised to tackle the labour shortages, partly caused by post-Brexit freedom of movement restrictions, which have often forced farmers to leave fruit rotting in the fields and cull healthy pigs.

Ms Truss, a former environment secretary who met farmers on a campaign stop in the south-west of England, said: “The pandemic and cost-of-living crisis have shown it is more vital than ever for us to ensure we have a high-quality and affordable supply of British food…

“I will cut the red tape that is holding (farmers) back and hitting them in their pocket”.

After the Lionesses’ Euro 2022 victory on Sunday night, Mr Sunak promised to try to bring a future women’s World Cup to the UK as he hailed England’s women’s football team as “transformational” for sport.

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His other announcements over the weekend included plans to introduce a £10 fine for patients who miss GP and hospital appointments, to slash the number of shuttered shops on Britain’s high streets, as well as a vow to tackle “woke nonsense”.

Ms Truss also unveiled a six-point plan on education, under which she promised that pupils with top A level grades would get an automatic invitation to apply for Oxbridge and other prestigious universities.

Both candidates will face a grilling in the second of 12 official hustings over the summer in Exeter at 7pm.

Although Conservative members have the chance to vote as early as this week, they have until the beginning of September to cast their ballot, with the winner announced on September 5.