Rishi Sunak u-turn on tax suggests UK leadership campaign in trouble

Rishi Sunak and Liz Truss will next debate again on Tuesday evening.

Rishi Sunak’s surprise announcement that he would scrap value added tax on domestic energy bills if he becomes prime minister represents a significant strategy shift as he seeks to revive his chances of winning the Conservative Party leadership race.

The former Chancellor of the Exchequer spent the early stages of the contest defining himself as the sensible candidate who would eschew populist policy announcements such as immediate tax cuts, insisting a cautious approach to the economy was essential to avoid stoking inflation. He went as far as to suggest that his rival Liz Truss’s plan for a raft of immediate tax cuts was “immoral,” piling debt onto future generations.

But after leading the race in every round of voting among Tory MPs, Sunak now trails the foreign secretary by a wide margin in polling among the grassroots party members who’ll make the final choice about their new leader. As evidence mounted that his status quo campaign wasn’t cutting through, his own strategists appear to have accepted a change in tack is required if he is to have any hope of overturning that deficit.

The year-long promise to scrap VAT on energy bills has the advantage that Sunak can portray it both as assistance to ordinary Britons struggling with the rising cost of living, and a benefit of Brexit -- a policy the UK couldn’t pursue while still in the European Union.

But it’s also raised eyebrows in the Conservative Party, with one Tory MP who is supportive of Truss saying her team will draw encouragement from the move and see it as a sign of Sunak’s increasing desperation.

‘Screeching’ U-Turn

Other Truss backers seized on it as evidence of the former chancellor flip-flopping, because he’d opposed the move earlier this year, saying it would “disproportionately benefit wealthier households.”

“I’m very pleased actually that he’s now done a bit of a U-turn; a screeching handbrake U-turn,” Business Secretary Kwasi Kwarteng -- a prominent Truss backer, told GB News on Wednesday. “The reason he’s doing that is because he’s under pressure, he knows that his tax-raising agenda isn’t working.”

"I am pleased he has now done a screeching handbrake U-turn on energy bills," he said.

Sunak’s team insisted the plan is consistent with his broader approach to the economy, and said that the VAT cut is not inflationary. Bloomberg Economist Dan Hanson estimates the plan will cost £4 billion ($4.8 billion) and shave about 0.4 percentage points off inflation in October.

But the shifting stance leaves the contender open to one of his opponents’ main attack lines during the leadership race: that he is now claiming to support policies that he opposed or actively blocked in government.

Truss supporters have argued that on issues such as Russia sanctions, a plan to deport migrants to Rwanda, the relationship with China and plans to overhaul the part of the Brexit deal relating to Northern Ireland, Sunak is now supporting a harder line that he wasn’t previously keen on when in government. Sunak’s campaign has denied that he opposed those policies while he was chancellor.

With another week to go before ballot papers go out to Tory members, it remains to be seen whether Sunak’s strategy shift toward punchier policy announcements will be enough to win over those who currently favor Truss. Polling after the candidates’ first head-to-head debate on Monday put Truss as a clear winner, while Tuesday’s second debate ended early after the presenter fainted.