Former chancellor Rishi Sunak on Monday rejected claims that he represented “stale economic orthodoxy” in the Tory leadership contest, claiming his rival Liz Truss was instead wedded to old-school thinking on business taxation.
Truss, foreign secretary, has claimed that Sunak represents the continuity of failed policies and that his adherence to Treasury orthodoxy led him to put up taxes, leading the UK towards a recession.
But at the start of a big week in the race to become Britain’s next prime minister, Sunak claimed he represented fresh thinking and that he had “ripped up the rule book” on fiscal policy during the Covid-19 pandemic.
As ballot papers started to arrive at the homes of more than 150,000 Conservative party members, Sunak said he had ignored “Treasury orthodoxy” in 2016 when he backed Brexit, while Truss had supported remain.
He added that his “radical and different” decision to raise corporation tax from 19 per cent to 25 per cent next year as part of a wider shake-up of business taxation indicated new thinking. Truss has opposed the move.
“It’s my opponent in this contest who wants to stick with the failed orthodoxy of having these ultra low corporation tax rates,” he told the BBC’s Today programme.
“You know what, they don’t work in increasing business investment in this country. We’ve tried it for a decade. It hasn’t raised growth, it hasn’t improved business investment, it hasn’t improved business innovation and R&D.”
Sunak said he would transform the tax system to encourage investment, rather than focusing on headline taxes on profits. Referring to Truss, he said: “What she’s suggesting is entirely sticking with the failed orthodoxy of the last decade.”
Truss and her supporters have adopted some of the tactics of Vote Leave in 2016 to portray her as a radical candidate ready to challenge failed “establishment” thinking; the Treasury is her principal target.
Nadhim Zahawi, the new chancellor and a former leadership contender, on Monday came out in support of Truss, telling The Telegraph that Britain needed a “booster attitude to the economy, not a doomster one”.
Zahawi, who took over at the Treasury after Sunak quit in protest at outgoing prime minister Boris Johnson’s alleged lack of integrity and a difference on economic policy, said Truss would “overturn stale economic orthodoxy and run our economy in a Conservative way”.
Sunak is trailing Truss in polls of party members and bookmakers make her odds-on favourite to become prime minister when the new leader is announced on September 5.
In addition to Zahawi, Truss has been endorsed by former leadership contender Tom Tugendhat. Sunak on Sunday won the backing of Damian Green, former cabinet minister and head of the moderate One Nation Tory group.
To try to energise his campaign, Sunak said on Sunday that he would cut the basic rate of income tax in 2024 from 20 per cent to 19 per cent, followed by further cuts to eventually reach 16 per cent by 2029. He claimed the cuts could be funded by economic growth.
Sunak initially resisted tax cuts in the contest, instead standing on a platform of “sound money” and tackling inflation. But struggling to make headway against Truss, he announced last week that he would reduce VAT on energy bills to ease the cost of living crisis.