UK’s Liz Truss considers 5% cut on VAT if she becomes PM

REUTERS/John Sibley
Conservative leadership candidate Liz Truss answers questions at a hustings event, part of the Conservative party leadership campaign, in Norwich, Britain, August 25, 2022.

LONDON (Reuters) – British leadership frontrunner Liz Truss is considering cutting value added taxes (VAT) across the board by 5% if she becomes prime minister, to tackle the cost-of-living crisis, the Telegraph reported on Saturday.

Truss’s leadership campaign is considering the plan as a “nuclear” option, the Telegraph quoted an unnamed source as saying, with other options including a 2.5% cut in VAT, from the current standard rate of 20%.

A 5% cut on VAT would save the average household more than 1,300 pounds ($1,527) a year, and would cost taxpayers 3.2 billion pounds a month, according to analysis by the Institute for Fiscal Studies think tank, the Telegraph said.

Separately, the Times newspaper reported Truss was also considering an emergency cut to income taxes and VAT. Some of her allies believe that the personal allowance, the rate above which people start to pay income tax, should be lifted, the paper said.

The British government has been facing growing calls to provide immediate financial support to households, with energy bills set to jump 80% to an average of 3,549 pounds a year from October.

Soaring energy bills, exacerbated by Russia’s invasion of Ukraine, have driven British inflation to 40-year-highs but the government’s response has been hampered by the race to replace Johnson that runs until Sept. 5.

The government has said it is preparing options on a cost-of-living support package for the next prime minister to consider.

Truss’s campaign is also considering extending a 5-pence cut in fuel duty, the Telegraph said.

“Liz will consider options to help people but it would not be right for her to announce her plans before she has even been elected Prime Minister or seen all the facts,” a Truss campaign source said.

Truss has said she favors tax cuts to expand the economy. Her leadership contender and former finance minister Rishi Sunak has pledged more direct support to help households struggling with surging energy bills.

“Next month – whoever takes over from me – the Government will announce another huge package of financial support,” Johnson, writing in an article for the Mail on Sunday, said.

$1 = 0.8513 pounds