Truss considers cutting VAT to 15% to ease UK crisis: Telegraph

BRITISH Secretary of State for Foreign, Commonwealth and Development Affairs Liz Truss is considering cutting Britain’s value added tax (VAT) by as much as 5 percentage points across the board, the Telegraph reported, a move that may head off criticism she lacks a plan to tackle the country’s cost of living crisis.

The potential reduction to 15 per cent, flagged in a newspaper that has strongly backed her leadership campaign for the post of prime minister against Rishi Sunak, represents something of a change of tack by Truss. Hours earlier, a strongly worded editorial in the Sun newspaper called the government’s near silence on the crisis “a disgrace” and urged Truss to abandon traditional Tory ideology. 

With the contest entering its final week – there is one hustings remaining in London on Wednesday (Aug 31) – Truss is favoured to win the backing of Conservative Party members and become Britain’s prime minister.

The reduction in the value added tax headline rate would be the largest ever and may save the average household more than £1,300 (S$2,125) a year, the Telegraph said. It could protect businesses from failing, and may be accompanied by additional measures to help the most vulnerable pay their energy bills – which are set to almost triple this winter from a year earlier, the Telegraph said, citing officials. 

The Treasury will present the next prime minister with plans modelled on former prime minister Gordon Brown’s response to the 2008 financial crisis as part of a series of options to offset soaring energy bills, said the Telegraph.

A 5-point cut would cost the taxpayer £38 billion to keep in place for 1 year, the Telegraph said, citing analysis by the Institute for Fiscal Studies. It may also reduce inflation temporarily by around 2 points.

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But Sunak’s campaign team warned that such a move would be “incredibly regressive”, and cost tens of billions of pounds, said the Press Association. 

Another suggestion being considered by Truss’ camp would be to raise the personal allowance that allows people to earn £12,570 a year before they start paying tax, ahead of Treasury’s schedule, the Times reported. 

Others in her team have proposed raising the threshold at which workers start paying the higher rate of income tax which stands at £50,270, reported the newspaper. BLOOMBERG