Liz Truss' plan to cut VAT would cost tens of billions, claims Rishi Sunak

The plan, understood to be a “nuclear” option being worked up to combat the cost of living crisis, has been dismissed by her rival’s camp as the leadership contest draws to a close.

Ms Truss’ team believes that a 5 per cent cut to the current rate of 20 per cent would save the average household more than £1,300 a year, according to the Sunday Telegraph.

However a source from Mr Sunak’s campaign called the move “incredibly regressive”, adding that it would cost more than £30 billion.

It is one of several options being worked up by the Foreign Secretary, along with a cut to income tax, which could include increasing the threshold on which people have to start paying, the Sunday Times reported yesterday.

A Treasury spokesman said the department is making the “necessary preparations” to ensure the next government has options to deliver extra help “as quickly as possible”.

It comes after Boris Johnson said that whoever succeeds him in No 10 would announce “another huge package of financial support” as Britain faces sky-high costs this winter.

The outgoing PM hinted at the scale of the options to ease the burden being teed up for either Ms Truss or Mr Sunak to consider, as he insisted “we must and we will help people through the crisis”.

In an article for Mail+, Mr Johnson acknowledged that the next few months will be difficult – “perhaps very tough” – as “eye-watering” energy bills take their toll, but he forecast the UK will emerge “stronger and more prosperous (on) the other side”.

He said “colossal sums of taxpayers’ money” have already been committed to assisting people with their bills.

But he added: “Next month – whoever takes over from me – the Government will announce another huge package of financial support.”

Mr Sunak has already said he will provide additional support targeted at the most vulnerable, but sources told the BBC that Ms Truss is not considering universal support, like the current £400 payment that families are due to receive this winter.