“I’ve not taken the easy route,” Rishi Sunak admitted as the curtain fell on one of his bruising showdowns with Liz Truss.
On economics at least, the former chancellor has not. As he fights to stay in the race to become the next Prime Minister, Sunak is struggling to win both the heads and hearts of Tory members and right-wing economists with sober fiscal policy and a tax raising plan.
In a live debate hosted by the BBC on Monday, he took aim at Truss splashing out on the country’s “credit card”, as well as Joe Biden’s big spending and even a key Thatcher adviser.
“Do we put it on the country’s credit card and pass the tab to our children and grandchildren?” Sunak said on borrowing. “I don’t think that’s right. I don’t think it’s responsible and it’s certainly not conservative.”
Sunak has thrown red meat to members on immigration, China, trans issues and Brexit. But he has been less willing to budge on economics despite a 20-point-plus gap in polls with Truss.
Rishinomics is coming under fire for being too complacent for the huge task ahead – and having a “dog’s dinner” of a tax plan as recession warnings mount. In the face of criticism, however, Sunak on Tuesday night launched a fightback with plans to scrap VAT on energy bills in a U-turn he hopes will win over sceptical Tory members.
Taxes and cost of living
Tory Prime Minister challengers have battled to flaunt their low tax credentials during the leadership race, but Sunak’s hands have been tied – largely by himself.
He came into the contest having set out detailed plans for tax to help stabilise the public finances while chancellor, and has mostly stuck to them.
While Truss is promising tax cuts to ease the pain of soaring living costs, Sunak has refused to back down on his “responsible” approach to debt and pay for giveaways by borrowing on the “credit card”.
Higher taxes will pay for higher spending, such as for the NHS, while also having debt on a declining path. But it means fewer giveaways for households feeling the pinch with Sunak saying he would only cut taxes once inflation is under control.
Under plans while in government, he had promised households an income tax cut before the next election. But that will only be after painful rises this year, set to send the tax burden to the highest level since Clement Attlee’s Labour government in the 1940s.
Some £18bn will be raised from April’s National Insurance hike while the freezing of income tax thresholds means more workers are being moved into higher bands. This “fiscal drag” effect has been boosted by high inflation with the Centre for Economics and Business Research (CEBR) predicting an extra £60bn in tax revenue for the next chancellor to play with.
However, there were signs of Sunak’s resistance creaking on Tuesday night as he unveiled plans to ditch VAT on energy bills for a year from October to help households through a tough winter, in a £4.3bn tax cut. If he struggles to gain ground on Truss, Sunak could announce more tax-slashing policies in a desperate bid to win support.