Tax Clash: This Is What Will Define Sunak Versus Truss PM Race

The division is key to deciding the outcome of the race to be the next prime minister.
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The two remaining Conservative leader candidates, Liz Truss and Rishi Sunak.
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Rishi Sunak and Liz Truss have spent the first full day as the final two candidates campaigning to succeed Boris Johnson as prime minister by setting out distinct differences on cutting taxes.

Keeping taxation low and economic competence are totemic Conservative issues, and are central to both of their pitches to party members, who will decide who will be their next leader on September 5.

Both make a claim to be the heir to Margaret Thatcher and her economic legacy, but their approaches are very different.

Truss defended her tax cut plans – costing at least £30 billion a year – as “affordable”, and promised an emergency budget to reverse the national insurance hike immediately under her proposals to drive growth.

Sunak, who has faced accusations from within his own party of being “socialist” in his spending during the pandemic, was understood to not be envisaging cutting personal taxes until at least autumn next year to avoid fuelling inflation.

Both hope their plans will appeal to the party’s base: Truss with a crowd-pleasing, traditional approach; Sunak by arguing overall fiscal responsibility trumps everything else. 

As it stands, Truss appears to be winning the argument among those who matter in the short term. A YouGov survey, carried out after the two final candidates had been announced, on Wednesday and Thursday, put Truss ahead of Sunak by 24 points.

What has Liz Truss said?

Truss defended her plans to scrap the scheduled corporation tax rise and suspend green levies on energy bills as “not a gamble” as she referred to the “headroom” afforded by Treasury forecasts about the state of the economy.

“My plans do not exceed the headroom. I’m very clear that they are about £30 billion worth of costings, and those are affordable within our current headroom,” she told broadcasters during a visit to Peterborough.

“But what is not affordable is putting up taxes, choking off growth, and ending up in a much worse position.”

She also said defiantly: “My tax cuts will decrease inflation.”

Robert Joyce, the deputy director of the Institute for Fiscal Studies think tank, put Truss’s tax cuts at “more than £30 billion per year – and possibly considerably more” – which could lead to higher borrowing or less public spending, or some combination of the two.  

What has Rishi Sunak said?

The pair have already gone toe-to-toe over the issue during the TV debates, with Sunak attacking his opponent’s “fairytale” economic plan.

While he may personally believe in the low-tax mantra, he has been boxed in by his time as chancellor and the unprecedented circumstances presented by Covid-19, and spending on schemes including furlough and test and trace.

Any reverse of a position that, as the IFS noted, will see tax heading towards its highest level in 70 years, will look like Sunk is flip-flopping.

On Thursday, it emerged that he does not believe he would be able to cut personal taxes until at least autumn 2023, a view that is likely to further anger the Tory right.

Appearing on Tonight with Andrew Marr on LBC, Sunak tried to avoid the personal attacks that saw both pull out of the Sky News debate. But when asked about the impact of borrowing £30 billion to pay for tax cuts, he said: “Debt and borrowing is not a good thing, we should try and avoid it and we’d rather have less of it if we can.”

He went on to say the Truss plan would have “inflationary” impacts – when inflation already stands at a 40-year high.

“We’ve got a situation where interest rates are already rising and inflation makes everybody poorer,” he said.

“In that situation, my strong point of view is – if the government goes on a huge borrowing spree, that is only going to make the situation worse.

“And that will mean that this problem that we’ve got will last longer.

“If we don’t get a grip on inflation now it will make families poorer in the long run and I want to avoid that at all costs.”

What next?

The pair battled to win the support of local politicians on Thursday when they took part in a private hustings for the Conservative Councillors’ Association.

They will then tour the UK to take part in 12 hustings for the Tory members who will vote for their next leader, with the result being announced on September 5.

The current size of the Conservative membership is unknown, but at the last leadership election in 2019 there were around 160,000 members, and insiders expect it to have grown.