The business secretary said the current economic policy “won’t help” and Sunak’s campaign warns against “magic solutions” as taxes remain a key dividing line in the Tory leadership race.
Foreign Secretary Liz Truss and former Chancellor Rishi Sunak, two candidates vying for the next prime minister, will again be tested at the Tory convention in Eastbourne on Friday night.
The economy and the rise in the cost of living have been central to the debate so far, but the backdrop got even sharper on Thursday when the Bank of England warned that the UK faces a two-year fall in household incomes, with inflation set to rise to more than 13%. and the economy is poised to plunge into the longest recession since the financial crisis.
Kwasi Kwarteng, business secretary and Truss campaign supporter, took aim at the former chancellor’s track record, saying the tax hike “adds insult to injury.”
He told Sky News: “I think the problem we have is very simple. I think we have inflation, which, as you say, is cutting people’s incomes, but we also have a growing tax burden.
“I never understood why, if we are going to help people. How are we going to help people by raising their taxes? Especially when their daily shop, their expenses go up.
“What is very clear to me from what the Bank of England said yesterday is that continuing the same thing, just continuing our economic policy for the moment, will not cut it, it will not help us get out of this difficulty.”
He added: “Telling people that your real income is going down and I’m going to raise your taxes, I think it just adds insult to injury. You are not really dealing with the problem, and the way to deal with the problem is in a looser fiscal approach.”
But Mr. Sunak’s supporter, former Cabinet Minister Liam Fox, said a broadcaster borrowing money to cut taxes now would “take risks” with the economy and warned against “magic solutions.”
The last time we actually cut taxes in this situation, borrowed money to fund tax cuts, it was in the Ted Heath government, and it didn’t work.Liam Fox
Dr. Fox said: “There is an element of global inflation here that needs to be dealt with. The question is, how do we do it? I think we need to deal with inflation first. Get control over borrowing. Then you take action to help the economy grow. And then you start thinking about lowering taxes.”
He described the global factors at play, saying, “So the question in the fight for leadership is, do we keep what is the traditional conservative response to that, or do we try something completely different and take a chance with the economy?”
“The last time we actually cut taxes in this situation, borrowed money to fund tax cuts, it was in the Ted Heath government and it didn’t work.”
He continued: “It won’t be easy and I think that’s the key difference between the candidates in this election because… are you really saying it’s going to be hard and be honest with the British people? Or are you pretending that there are magical solutions?
Asked about Ms. Truss’ assertion that a recession is not inevitable, Dr. Fox said: “I think it is inevitable given what’s going on in the global economy.”
Former housing minister Robert Jenrick, also a supporter of Sunak, said on BBC Radio 4’s Today program: Secondly, not raising corporate tax for the top 30% of companies, which greatly favors very profitable businesses like your BP or Persimmons, doesn’t feel right now.”