Sunak accused of making U-turn by shelving VAT on energy bills for a year

Rishi Sunak has been accused of making a screeching U-turn that would fuel inflation after he promised to abolish VAT on energy bills for a year. The former chancellor of the exchequer, who has branded Liz Truss’s plans for tax cuts “fairy tale” economics, said he would take the step if bills rise above a specific level later this year.

“This temporary and targeted tax cut will get people the support they need whilst also — critically — bearing down on price pressures,” he said.

But business secretary Kwasi Kwarteng, who is backing Ms Truss, said the proposal represented “a screeching handbrake turn” in view of Mr Sunak’s previous statements suggesting that removing VAT on energy bills would not target the most vulnerable households.

“He has flip-flopped and U-turned on this tax issue which I find somewhat concerning,” Mr Kwarteng said.

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Mr Sunak claims that his proposal is consistent with his prudent approach to the public finances because, unlike Ms Truss’s proposed tax cuts, it is a one-off measure for one year only. The Institute for Fiscal Studies said that the policy’s fiscal and environmental costs would be bearable if it was genuinely temporary.

“While the policy would reduce energy prices directly, leaving more money in people’s pockets would encourage more spending on other items, slightly adding to inflationary pressures elsewhere,” the think tank said.

“The biggest risk with the policy is that it would prove politically difficult to restore VAT on energy bills at the end of the 12 months. As a permanent policy, removing VAT on energy bills would be a move in exactly the wrong direction.”

Mr Sunak and Ms Truss will be in Leeds on Thursday evening for the first of 12 official hustings that will see them interviewed separately before an audience of Conservative members. Polls show Ms Truss comfortably ahead among party members but Mr Sunak hopes that the hustings will help him to win over the large pool of undecided voters.

Labour leader Keir Starmer on Thursday sacked shadow transport minister Sam Tarry, who joined a picket line in support of striking rail workers. Labour said Mr Tarry, who is a close ally of deputy leader Angela Rayner, was sacked for speaking to the media without prior authorisation.

“This isn’t about appearing on a picket line. Members of the frontbench sign up to collective responsibility. That includes media appearances being approved and speaking to agreed frontbench positions,” a party spokesman said.

“As a government in waiting, any breach of collective responsibility is taken extremely seriously and for these reasons Sam Tarry has been removed from the frontbench.”

A number of unions condemned the move, which follows Sir Keir’s repudiation of the pledges he made when he was running for the party leadership, including nationalisation of the railways. Mr Tarry said he was proud to stand with the striking rail workers.

“These key workers kept our train services running throughout the pandemic, and were among Britain’s Covid heroes alongside the NHS and other public services,” he said.

“Those same workers have been forced to take action because they’re faced with a cost-of-living crisis and rampant inflation caused by the government’s mismanagement of our economy, leaving millions struggling to pay their bills and provide for their families, made worse by the fact that callous and incompetent ministers refuse to even negotiate with their trade unions.”