Liz Truss is reportedly considering whether to cut VAT across the board by 5%, which could save families £1,300 a year.
The Foreign Secretary is understood to have discussed the move with her advisers, but no final decision will be made until the Conservative leadership race ends on September 5, The Sunday Telegraph reports.
The Treasury is expected to present to the new prime minister a plan modelled on Gordon Brown’s response to the 2008 financial crisis, with the value-added tax cut from 20% to 17.5% in a year as part of a series of proposals amid a surge in energy bills.
The typical household’s energy bill will rise to £3,549 a year on October 1 when the new price cap is introduced, the price was announced on Friday.
If the VAT rate is cut to 5% from the current standard rate of 20%, it would be the largest reduction ever.
Truss’s campaign has begun drawing up plans for her “emergency budget” but a source told the Telegraph that it “would not be right for her to announce her plans before she has even been elected minister or seen all the facts”.
According to analysis by the Institute for Fiscal Studies, a 5% cut in costs is estimated to cost £3.2bn a month or £38bn to maintain for a year.
It will also temporarily reduce inflation by about 2%. Last month, Rishi Sunak announced plans to temporarily scrap VAT on household energy bills if elected prime minister.
A Treasury spokesman said the government was “making the necessary preparations to ensure that the new government has the option to provide additional support as soon as possible”, adding: “No major fiscal decisions will be made until a new prime minister takes office.”
