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

Tackling the cost of living crisis is the number one priority for Liz Truss.

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 are expected to follow and the cost of all that support to the public finances.

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 80% 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 being swallowed by firms being passed on down the supply chain, fuelling the inflation problem further, but also raising fears that unsustainable prices will force them out of business and unemployment up.

Ms Truss had been tight-lipped on the details of her plan to help bring down energy bills in advance of her victory but it emerged on Monday that it was would take the form of an energy price freeze, potentially costing north of £100bn.

It builds on 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.

The Truss scheme set to be announced on Thursday could see bills frozen at the current price cap level of £1,971 until 2024 – the year of the next election – or at least cut very significantly.

It would see the taxpayer subsidising the cost of wholesale gas bought by suppliers and generators in the form of loans to energy companies.

The idea is that the Treasury would fund the gap between current prices and whatever suppliers are allowed, by the regulator Ofgem, to charge customers from October onwards.

The model tipped to be revealed would allow the cost to be spread out in bills over time – perhaps decades.

But there are many questions, including whether some of the money would take the form of a grant and if households on fixed rate deals with their suppliers would qualify.

For businesses, small firms are expected to be included in the freeze initiative.

There has also 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 £150bn 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.