Explainer-in-brief: Behind Rishi Sunak’s VAT cut promise
Rishi Sunak has announced a plan to cut VAT from energy bills in a bid to ease the burden on households. Many, however, have seen it as a desperate attempt to revive his “underdog campaign” for the Tory leadership. His flagship ideology thus far has been that tax cuts would stoke inflation by encouraging people to spend more – and in turn, push prices up further. He has repeatedly claimed Liz Truss is spinning a “fairytale” with her £30bn package of tax cuts.
The former chancellor has tried to distinguish his VAT cut from Truss’ promises on the basis they are “temporary and targeted”. It will only kick in once the energy price cap rises in October. Forecasts have suggested it could rise to £2,800 and a VAT cut would only grant a 5 per cent relief for households.
According to the Institute for Fiscal Studies, it would be slightly inflationary, but it would be difficult to pull back in 12 months, as Sunak has promised.
Sunak’s problem is one of raw politics if Conservetive members, who hold his fate, see it only as a last-ditch effort for the leadership.