Truss 'plans to hike income tax thresholds' as part of rescue package amid spiralling cost of living crisis

29 August 2022, 07:42 | Updated: 29 August 2022, 19:13

Rishi Sunak and Liz Truss are falling under increasing pressure to tackle the cost of living crisis
Rishi Sunak and Liz Truss are falling under increasing pressure to tackle the cost of living crisis. Picture: Alamy

By Emma Soteriou

Liz Truss is planning to hike income tax thresholds as part of an emergency budget to deal with the cost of living crisis.

Listen to this article

Loading audio...

It comes as pressure is mounting on the two remaining Tory leadership candidates to tackle the UK's worsening cost of living crisis.

A senior ally of Ms Truss said she was "certain" to end the four-year freeze in income tax thresholds - initially brought in to help pay off Covid costs - according to the Daily Mail.

"One thing you can be certain of is the freeze on thresholds is going to end early," the source told the paper.

"When inflation is running at 10 per cent you cannot have the thresholds frozen because you will have people paying a higher proportion of tax on their income at a time when bills are going through the roof."

The freeze - forecast to raise £8.1billion a year - was introduced when inflation was below two per cent.

However, Business Secretary Kwasi Kwarteng - tipped to serve as Chancellor under Ms Truss - is expected to look at raising the basic rate threshold of £12,570 as well as the 40 per cent higher rate threshold of £50,270.

He is also expected to consider bringing forward a 1p cut in the basic rate of income tax, which was not due to come into force until 2024.

It comes as Ms Truss pulled out of an interview with veteran political journalist Nick Robinson which was due to air on Tuesday.

The Tory leadership frontrunner's team said she could "no longer spare the time" to take part in the one-to-one interview, which was scheduled for 7pm on August 30 on BBC One, BBC News tweeted on Monday.

"We regret that it has not been possible to do an in depth interview with both candidates despite having reached agreement to do so," the press team said in a second tweet.

Ms Truss's rival in the race for No 10, Rishi Sunak, sat down with Robinson earlier this month.

Read more: Schools consider turning down heating and giving out jumpers to pupils to tackle soaring energy bills

Read more: Even well-off Brits earning £45,000 a year will suffer in coming months, chancellor warns

Matthew Wright on reports Liz Truss is considering cutting VAT

Ms Truss is believed to have ruled out more handouts after Rishi Sunak introduced a universal £400 energy bill discount earlier this year, with more targeted support instead expected.

Options include an increase in the winter fuel allowance for pensioners and helping those on universal credit.

There have been reports that Ms Truss also plans to cut VAT by five per cent - saving the average household more than £1,300 per year - in a bid to get the spiralling costs under control.

However, a source from Rishi Sunak's campaign warned the plan was "regressive" and would cost tens of billions of pounds.

It is one of a series of possible strategies being drawn up by the Treasury for the new prime minister to look at when they take office.

A Treasury spokesperson said the department is making the "necessary preparations" to ensure the next government has options to deliver extra help "as quickly as possible".

Liz Truss is reportedly considering an across-the-board VAT cut
Liz Truss is reportedly considering an across-the-board VAT cut. Picture: Alamy

The UK has been facing an escalating cost of living crisis, driven in part by soaring energy bills.

On Friday the energy price cap was hiked from £1,971 to £3,549, leaving already financially-squeezed Brits facing potentially tough choices between heating and eating in the winter.

Boris Johnson said over the weekend that whoever succeeds him in No10 would announce "another huge package of financial support".

The outgoing PM hinted at the scale of the options to ease the burden being weighed up for either Ms Truss or Mr Sunak to consider, as he insisted "we must and we will help people through the crisis".

Read more: Six million households could have savings wiped out by energy bills - but PM promises 'pipeline of cash' soon

Read more: Hundreds gather at Ofgem HQs to protest 'catastrophic' energy price hike

In an article for Mail+, Mr Johnson acknowledged the next few months will be difficult - "perhaps very tough" - as "eye-watering" energy bills take their toll, but he forecast the UK will emerge "stronger and more prosperous (on) the other side".

He said "colossal sums of taxpayers' money" had already been committed to assisting people with their bills.

But he added: "Next month - whoever takes over from me - the Government will announce another huge package of financial support."

Matthew Wright on reports Liz Truss is considering cutting VAT

Regulator Ofgem warned the Government on Friday it must act urgently to "match the scale of the crisis we have before us".

Read more: Police list milestones nine-year-old Olivia won't reach as they issue emotional fresh appeal for information

Read more: Two people injured after bus shelter collapses with Notting Hill Carnival revellers standing on the roof

Mr Sunak has already said he will provide additional support targeted at the most vulnerable.

He reiterated this in an article for The Times on Saturday, arguing efforts should be focused on low-income households and pensioners, with help delivered through the welfare system, winter fuel and cold weather payments.

He said it is "right to caution against providing definitive answers before getting into Downing Street", as it is "responsible" to first have "full command of the fiscal situation".

However, the former Chancellor acknowledged that providing "meaningful support" would be a "multibillion-pound undertaking".

Rishi Sunak has previously accused Ms Truss of 'fairytale economics'
Rishi Sunak has previously accused Ms Truss of 'fairytale economics'. Picture: Alamy

Ms Truss has promised "decisive action" to deliver "immediate support" if she wins the contest.

She has argued it is not "right" to announce her full plan before the contest is over or she has seen all the analysis being prepared in Whitehall.

Read more: Teenage boy dies after suspected drugs incident at Leeds festival

Read more: Short-sighted soldier shot dead army sergeant after he confused him from wooden target on exercise

Chancellor Nadhim Zahawi has declared he is working "flat out" to draw up options for a plan of action for the next prime minister so they can "hit the ground running" when they take office in September.

In an interview with The Daily Telegraph, he said he was exploring ways to ensure "we help those who really need the help".

"My concern is there are those who aren't on benefits," he said.

"If you are a senior nurse or a senior teacher on £45,000 a year, you're having your energy bills go up by 80% and will probably rise even higher in the new year - it's really hard.

"If you're a pensioner, it's really hard. So Universal Credit is a really effective way of targeting, but I'm looking at what else we can do to make sure we help those who really need the help. We're looking at all the options."

'Liz Truss may find her policies are undeliverable'

The Treasury spokesperson said: "We know people are concerned about rising prices, and that's why we've introduced £37 billion help for households, targeted at the most in need.

"We are also making the necessary preparations to ensure a new government has options to deliver additional support as quickly as possible, as the Chancellor has made clear.

"And as the Prime Minister has made clear, no major fiscal decisions will be taken until the new prime minister is in post."