UK's Liz Truss considers 5% cut in VAT if she becomes PM -Telegraph

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Britain leadership contenders take part in Conservative Party hustings event, in Norwich

LONDON (Reuters) -British leadership frontrunner Liz Truss is considering cutting value-added tax (VAT) by 5% across the board to help tackle the cost-of-living crisis if she succeeds Boris Johnson as prime minister next month, the Sunday Telegraph reported.

The government has been facing growing calls to provide immediate financial support to households struggling with squeezed budgets as energy bills jump 80% to an average of 3,549 pounds ($4,169) a year from October.

Truss's leadership campaign is considering the plan as a "nuclear" option, the Telegraph quoted an unnamed source as saying, with other options including a 2.5% cut in the VAT sales tax, from the current standard rate of 20%.

A 5% cut in VAT would save the average household more than 1,300 pounds a year, and would cost taxpayers 3.2 billion pounds a month, according to analysis by the Institute for Fiscal Studies think tank, the Telegraph said.

Separately, the Times newspaper reported Truss was also considering an emergency cut to income taxes. Some of her allies believe that the personal allowance, the rate above which people start to pay income tax, should be lifted, the paper said.

In May, the government set out a 15-billion-pound support package, including a 400 pound energy bill credit for every household.

The BBC, citing her campaign team, reported Truss had ruled out further direct support for everyone, the approach favoured by her rival for leadership of the governing Conservative Party, former finance minister Rishi Sunak. Truss has previously said she favours tax cuts rather than handouts.

Sunak supporter and former minister Simon Hart told Times Radio on Sunday the cost-of-living pressures people face were not going to be resolved by "just an eye-catching tax cut".

Soaring energy bills, exacerbated by Russia's invasion of Ukraine, have driven British inflation to 40-year-highs but the government's response has been hampered by the race to replace Johnson that runs until Sept. 5.

The government has said it is preparing options on a support package for the next prime minister to consider.

Truss is also considering extending a 5-pence cut in fuel duty, the Telegraph said.

"Liz will consider options to help people but it would not be right for her to announce her plans before she has even been elected prime minister or seen all the facts," a Truss campaign source said.

Writing in the Mail on Sunday, Johnson acknowledged energy bills were going to be "eye-watering".

"Next month – whoever takes over from me – the government will announce another huge package of financial support," he said.

($1 = 0.8513 pounds)

(Reporting by Sachin Ravikumar, additional reporting by Kylie MacLellan; Editing by Richard Chang, Daniel Wallis and Catherine Evans)