Tory leadership candidates promising tax cuts to fix cost of living crisis have 'lost touch with reality'

Top row: Liz Truss, Rishi Sunak, Grant Shapps (dropped out) Suella Braverman, Tom Tugandhat. Bottom row: Rehman Chishti, Sajid Javid, Penny Mordaunt, Nadhim Zahawi, Jeremy Hunt, Kemi Badenoch (PA)

A top economist has warned that Tory leadership hopefuls pledging to cut taxes to address the rising cost of living have "lost touch with reality".

Slashing taxes has become a key dividing line in the race to be the next PM.

One candidate, former health secretary Jeremy Hunt, on Monday suggested that he would look at cutting "all taxes" if he were to become prime minister.

However, a number of economists have expressed concern at the approach.

Read more: The important economic story you may have missed during Boris Johnson's downfall

Torsten Bell, director at the Resolution Foundation, has said introducing tax cuts to address the cost of living is not a workable solution.

"Anyone saying tax cuts are their answer to the cost-of-living crisis has lost touch with reality," said Bell.

In a column in the i newspaper, Bell also warned tax cuts could make inflation worse, and called on Tory leadership candidates to be "honest" about the economic situation.

Prime Minister Boris Johnson reads a statement outside 10 Downing Street, London, formally resigning as Conservative Party leader after ministers and MPs made clear his position was untenable. He will remain as Prime Minister until a successor is in place. Picture date: Thursday July 7, 2022.
Boris Johnson's resignation fired the starting pistol on the Tory party leadership contest. (PA)

Bell is not alone in his criticism.

George Dibb, head of the centre for economic justice at the Institute for Public Policy Research (IPPR), has said tax cuts on the scale candidates are offering is "divorced from reality".

“These tax cuts are no longer being promised as a way of addressing cost of living," said Dibb. "It’s more of an arms race to win over Conservative party members and it's totally divorced from reality.”

Rishi Sunak has positioned himself as an outlier in the contest with his decision not promise immediate tax cuts.

Read more: Martin Lewis: UK needs ‘new leaders in office asap’ ahead of ‘catastrophic’ winter

He argues he will not sell "fairy tales" to voters when the country cannot afford lower taxes.

“It is not credible to promise lots more spending, and lower taxes," said Sunak. "I had to make some of the most difficult choices of my life as chancellor, in particular, how to deal with our debt and borrowing after COVID.

"I have never hidden away from those, I certainly won’t pretend now the choices I made and the things I voted for were somehow not necessary.

“While that may be politically inconvenient for me, it is also the truth. As is the fact that once we’ve gripped inflation, I will get the tax burden down. It is a question of when, not if.”

Elsewhere, speaking to BBC's Newsnight, former chancellor and Tory grandee Ken Clarke warned against "populist" pledges on taxes.

"I would like to see tax cuts, of course I would, from the present extraordinary levels. But when the economy has been put into a state where you could responsibly afford them," said Clarke on Monday night.

Rishi Sunak speaking at the launch of his campaign to be Conservative Party leader and Prime Minister, at the Queen Elizabeth II Centre in London. Picture date: Tuesday July 12, 2022.
Former chancellor Rishi Sunak has refused to pledge to cut taxes immediately. (PA)
Energy bills are predicted to surpass £3,300 this winter. (Ofgem, Cornwall Insight)

"Tough and difficult decisions are require right now, not more populist nonsense on top of what we've sometimes had already."

Labour on Monday released analysis this week that the £330bn of tax cuts so far pledged by Tory leadership hopefuls have not come with a plan on how to pay for them.

It comes amid gloomy economic forecasts for the months ahead, with some experts warning energy bills will surpass £3,000 a year this autumn.

Jonathan Brearley, chief executive at energy regulator Ofgem, refused to rule out that the energy price cap could surpass £3,200 this autumn.

Read more: Families paying an extra £500 a year to fill up cars with petrol

"It's clear given the pricing dynamics we're seeing, given the ongoing impact of the Russian invasion of Ukraine, that there is positive pricing pressure there – as in prices are looking higher than they did when we made that estimate," Brearley told MPs in parliament on Monday.

"But we don't give ongoing sort of commentary until we make our formal announcement."

The energy watchdog had predicted energy bills would hit £2,800 just weeks ago but experts have warned that figure is already out of date.

Watch: Keir Starmer demands Tory candidates explain promised spending