Truss 'hasn't ruled out emergency support' to help families with cost of living crisis

How to help households in the cost of living crisis has become the key diving issue in the race to No 10, as Political Reporter Harry Horton explains

Liz Truss has vowed to use a September emergency budget to “immediately” cut taxes as a senior ally said she has not ruled out giving support to struggling families.

But Rishi Sunak has contrasted his “clear-eyed realism” with the “starry-eyed boosterism” of his Tory leadership rival with just four weeks left in the race to No 10.

The two candidates vying to replace Boris Johnson as prime minister continued to clash over their plans for the economy after the Bank of England warned this week that the UK would fall into the longest recession since the financial crisis, with inflation set to soar to more than 13%.

The foreign secretary earlier insisted tax cuts, not “handouts”, would help families with spiralling fuel bills this winter.

She told the Financial Times: “Of course, I will look at what more can be done. But the way I would do things is in a Conservative way of lowering the tax burden, not giving out handouts.”

Former Tory leadership candidate Penny Mordaunt, who has thrown her backing behind Ms Truss, said Ms Truss has pointed to "taking money off of people when you don't need to and giving it back in ever more complicated ways is not helpful."

Bur Ms Mordaunt said: "[Liz Truss] has not ruled out all support for people who are facing issues on cost of living.

"What she's pointed to, is that it makes no sense to be doing that at the same time as you're taxing people more than you need to, she wants people to also keep more of the money that they are earning."

Penny Mordaunt: 'Taking money off of people when you don't need to is not helpful'

Responding to her comments, Mr Sunak said: “It’s simply wrong to rule out further direct support at this time as Liz Truss has done, and what’s more, her tax proposals are not going to help very significantly people like pensioners or those on low incomes who are exactly the kind of families that are going to need help.”

It comes as a new report said even existing government support for the lowest income families doesn't go far enough, with some families up to £1,600 worse off a yearThe additional £1,200 offered to the poorest in society this year will fail to compensate for three major blows to their income from October 2021 to October 2022, the analysis suggests.

The loss of the £20-a-week benefits uplift, an annual uprating out of line with inflation forecasts, and a jump in the energy cap will mean the worst-off families cannot bridge the gap, said the report carried out by Professor Donald Hirsch at Loughborough University.

Mr Sunak has argued that inflation must be brought under control before taxes are lowered, saying Ms Truss’s promised unfunded tax cuts would further drive up prices.

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In an interview with The Times, the former chancellor said: “The priority for me is to not do things that make it worse and I think putting £40 billion plus and borrowed money into an economy that’s seeing an inflation spiral does risk making it worse.

“It might be okay but I think it means taking a gamble with people’s savings, their pensions, their mortgage rates, it’s not a gamble I’m prepared to take so I don’t want to make it worse.”

He told the newspaper the British people deserved “clear-eyed realism and not starry-eyed boosterism”.

But Ms Truss said she did not accept the “inevitability of a recession” as she pledged to “immediately” cut taxes if she wins the race for No 10.

Allies of Liz Truss say she wants to put more money in people’s pockets Credit: Jacob King/PA

“Despite the Bank of England’s stark assessment this week, I do not believe in resigning our great country to managed decline or accepting the inevitability of a recession,” the foreign secretary wrote in The Sunday Telegraph.

“I would hit the ground running by bringing in an emergency budget, charting a firm course to get our economy growing in order to help fund our public services and NHS.

“I would use this to immediately tackle the cost-of-living crisis by cutting taxes, reversing the rise on national insurance and suspending the green levy on energy bills”.

Ms Truss wants to accelerate by six months her plan to scrap the national insurance hike, implementing the change within days of a September emergency budget instead of waiting until April in line with usual Treasury rules, the newspaper reported.

A Tory MP supporting Mr Sunak in the party’s leadership contest has said the former chancellor's approach is about "direct, targeted, timely help to people" and "not handouts" amid the worsening cost-of-living crisis.

Damian Hinds: Rishi Sunak says it's right to have all options on the table

Former security minister Damian Hinds told ITV News: "As with coronavirus, sometimes you have to do things differently, because of the scale and the uniqueness of the problem that you face."

In a swipe at Mr Sunak’s rival Liz Truss, Mr Hinds added: "There is real worry about the inflation that will come with that [tax cuts] and the effect on interest rates."

During a campaign visit to Solihull on Saturday, the Foreign Secretary told reporters: “What I’m about as a Conservative is people keeping more of their own money, growing the economy so we avoid a recession and the best way to do that is lower taxes, but also unleashing investment into our economy.”

She hit out at Mr Sunak’s economic legacy as chancellor, saying: “Under the plans at present, what we know is Britain is headed for a recession.

“That is not inevitable, but we need to avoid that by making sure our economy is competitive, that we’re encouraging businesses to grow and that we are keeping taxes low.

“Having the highest taxes for 70 years is not going to deliver that economic growth and it’s leading our country to a recession.”

Rishi Sunak, pictured at a campaign event in Edinburgh, says the race is not yet determined Credit: Jeff J Mitchell/PA

Meanwhile, former prime minister Gordon Brown urged Mr Johnson, Mr Sunak and Ms Truss to agree an emergency budget this week or risk “condemning millions of vulnerable and blameless children and pensioners to a winter of dire poverty”.

“The reality is grim and undeniable: a financial timebomb will explode for families in October as a second round of fuel price rises in six months sends shock waves through every household and pushes millions over the edge,” Mr Brown wrote in an op-ed in Sunday’s Observer.

Arguing that monetary policy exacerbated the spike in inflation, Ms Truss suggested the Bank of England’s remit should be reviewed after being last set in 1997 under Mr Brown.

“I fully support its independence but its mandate cannot be bound by the same Brownian consensus twenty-five years on,” she wrote in The Sunday Telegraph.

Mr Sunak said any threat to review the Bank of England’s remit would be “worrying” and likely to “spook international investors”.

Speaking after the biggest interest rate rise in 27 years, he told The Times that the bank had not been alone in underestimating “both the scale and the duration of inflation”, adding: “I believe in an independent central bank and I believe they should act forcefully to grip inflation”.

Gordon Brown has called for the government to implement an emergency budget Credit: Jane Barlow/PA

Elsewhere, Mr Sunak set out his plan to reform post-16 education, including phasing out university degrees that do not improve students’ “earning potential”, creating a Russell Group of world-class technical colleges and introducing a British Baccalaureate that would prevent 16-year-olds from dropping maths and English.

The former chancellor and Ms Truss are seeking support from Tory members to be elected the next party leader and prime minister. Voting has begun, with the result to be announced on September 5.

Mr Sunak said his approach to trying to make up ground against Truss is to “love bomb” the party faithful by criss-crossing the country and meeting hundreds a day.

The race is not yet decided, he told The Times, saying: “I am probably the underdog in this thing … but it does not feel like the polls when I’m out and about”.