What will Truss do to ease cost of living crisis for households and businesses?

Tackling the cost of living crisis, Liz Truss herself has admitted, is her number one priority once she gets the keys to Number 10.

Her victory over Rishi Sunak in the Tory leadership race followed a tense five-week debate, dominated by how each would approach getting bills down for households and businesses.

After criticism that the government was rudderless in the face of soaring inflation and warnings of a recession ahead, Ms Truss promised on Sunday she would reveal her energy bill action plan within a week.

Here Sky News examines what that may entail, the wider measures that could follow and the cost of that support.

The big picture

Recession is “not inevitable”.

It was a remark from Ms Truss at the start of her push for prime minister that stood out from the early crowd of hopefuls.

With the annual rate of inflation running at more than 10%, consumer spending, the main engine of the UK economy, is slowing down while a growing number of firms worry their costs will force them out of business.

The single biggest driver of inflation in the UK (and elsewhere in Europe) is the soaring cost of raw energy due to Russia’s war in Ukraine.

This is where Ms Truss will place her initial focus.

Energy bills

It was announced last week that the energy price cap, which covers the vast majority of households, would rise to an average annual total of £3,549 from October and there is speculation that sum could exceed £5,000 next year.

Businesses, which are not covered by the price cap, have had to swallow rising gas and electricity costs much earlier.

It has meant those extra bills have been passed on down the supply chain, fuelling the inflation problem further, but also raising fears that unsustainable prices will ultimately force firms out of business and unemployment up.

Ms Truss has been tight-lipped on the details of her plan to help bring down energy bills.

She has promised additional aid beyond the £37bn of cost of living support announced by the government to date that sees the poorest households secure up to £1,200, with grants of £400 for all homes.

That may come in the form of additional grants or taxpayer cash to fund a price cap freeze, with The Times reporting that the scale of the support could be on a par with the £70bn COVID furlough scheme.

A senior Truss ally has told Sky News a “shock and awe” announcement can be expected; signalling a bigger package than people currently expect – giving more weight to the prospect of a bill freeze.

Labour’s plan for a bill freeze was criticised by the Truss camp.

For businesses, there has been talk of a cut in business rates to help with energy costs, but Ms Truss has mentioned no specific details bar ruling out further windfall taxes on the big oil firms.

In addition to tackling the immediate problem of rising bills, her energy plan due this week is also expected to contain information on how the UK will bolster its energy security.

Spending cuts?

Ms Truss has explicitly ruled out cutting public spending to save money.

Tax cuts

We are unlikely to get any details of the Truss plans to stimulate the economy until a Budget later in the autumn but she has promised a “bold” plan to cut taxes and bolster growth.

Her idea of cutting taxes to stimulate spending was probably the most divisive issue of the leadership race.

Mr Sunak, the former chancellor, argued that damaging tax receipts before inflation was under control would prove “regressive” and only bolster inflation further.

But Ms Truss has been considering a cut in VAT to 15% to help both consumers and businesses, according to a Sky News source, in a move that could hurt revenues by £38bn annually, according to the IFS think-tank.

She may also move to extend the cut in fuel duty due to end in March.

Ms Truss’s team is also considering lifting the personal tax-free allowance, according to The Sunday Times, raising the point at which people pay the 40% rate of tax and cutting the basic tax rate below 20%.

One possible measure – that would appear more nailed-on because of a campaign pledge – is the reversal of the recent rise in National Insurance to help fund social care and NHS backlogs.

Such a move would benefit the highest earners more and is seen by critics as intensifying income inequality.

Ms Truss is also widely expected to cancel another Sunak-era measure – a planned hike in corporation tax from 19% to 25% next April – over fears it will hurt the UK’s post-Brexit competitiveness.

What cost to the public finances?

None of these measures are set in stone, but it is clear that if they were all taken, the short-term cost to the public finances could top £100bn easily but it is a purely speculative figure.

It is based on the assumption that energy bills are frozen this winter, VAT is cut, the corporation tax hike is cancelled and business rates are cut.

With the UK national debt nearing £2.4trn, can the government afford to take these measures after the unprecedented support offered during the pandemic, given the soaring cost of servicing that debt?

Given the scale of the prices being faced by households and businesses, all sides agree it would be irresponsible not to offer support. The debate centres on who should benefit.