Truss says recession 'not inevitable', Sunak says Tories must 'get real and fast'

Raising its base rate half a point to 1.75 per cent, the Bank estimated inflation would top 13%, and said the UK would slide into a 15-month recession at the end of the year.

The prospect of all of 2023 being spent in the worst slump since the 2008 Crash and a record fall in living standards may tempt whoever wins the race to call a snap election. 

Ms Truss claimed the recession was “not inevitable”, and could be averted by her plan for immediate tax cuts, and unless the country was bold it faced “very, very difficult times”.

While Mr Sunak accused her of promising billions of pounds of “goodies” in uncosted tax cuts that could make the problem worse by deepening and prolonging inflation.

The Tory party had to “get real and fast” about the looming crisis, he said.

On a show of hands, the audience of 60 Tory members overwhelmingly said Mr Sunak impressed them more and would get their support.

The two candidates also faced a series of spiky questions from audience members and host Kay Burley over their records in office and attitude towards Boris Johnson.

Asked about the Bank’s forecast, Ms Truss said it was “extremely worrying.. but it is not inevitable". 

She said: "We can change the outcome and we can make it more likely that the economy grows. We need to help people struggling with the cost of living. I would immediately reverse the National Insurance increase. 

“I would also have a temporary moratorium on the green energy levy to save people money on fuel bills, but also keep corporate corporation tax low to make sure that we are attracting investment into our economy, doing all we can to avoid a recession, because I know what it's like when people lose their jobs when towns and cities across our country struggle.

"I don't want our country to go through that. 

“We keep taxes low, and we do all we can to grow the economy by taking advantage of our post Brexit freedom, unleashing investment, changing things like the procurement rules, and doing things differently. 

“But now is the time to be bold, because if we don't act now, we are headed for very, very difficult times.”

One audience member said she didn’t want her children and grandchildren "encumbered with huge debt” as a result of borrowing to fund £30bn of tax cuts, adding: “One thing Margaret Thatcher believed in was sound money. This is not sound economics.”

Ms Truss said the UK did not have “particularly high national debt” relative to other big countries, and low  tax would help attract investment.

Despite the colossal profits of energy companies, she ruled out another windfall tax on the sector, saying a “surprise tax” would be a “problem for Britain” as it would unsettle business.  

“If the UK gets a reputation for arbitrarily taking money in tax.. not sort of done through the official taxes, I think that's a problem,” she said.

Asked if she would apologise to Nicola Sturgeon, who she called an “attention seeker” who was best ignored, Ms Truss said: “No, I won’t.”. 

Ms Truss was also pushed hard about her U-turn on public sector pay cuts outside London, a plan she dumped within hours of it being branded “levelling down”. One audience member called it "quite offensive”.

Ms Truss said the policy had been misrepresented and was not intended to cover teachers, nurses and the police.

"But asked how she had arrived at her £8.8billion savings figure, she said: “I don’t have the details.”

She repeatedly refused to concede the policy had been a “mistake”, but accepted that it was not the right policy.

She refused to say whether if would strip the Tory whip from Boris Johnson if he is found to have lied to MPs, saying she would not make any “prejudgments” before then saying he “didn’t mislead Parliament”.

Pitching himself as more realistic and reliable, Mr Sunak said: “I'm not standing here promising you tens and tens of billions of pounds of goodies straightaway, because I don't think that's the right thing to do for our economy. I think it's risky. I think it risks making the inflation problem far worse and costing you all far more.

“I'm sure many of you saw what the Bank of England had to say today. 

"We in the Conservative Party need to get real and fast, because the lights on the economy are flashing red, and the root cause is inflation. 

“Now, I'm worried that Liz Truss’s plans will make the situation worse. 
“And what I want to do is different. I think the government's number one priority should be grappling with inflation. That's what I want to do.

“I also want to help people with cost of living over autumn and winter, particularly the people who most need our help. That's how I acted over the past few years. That's what I'll do as your Prime Minister.

“I want to grow the economy and I want businesses to be producing more. 

“But it all starts with not making the situation worse, because if we just put fuel on the fire of this inflation spiral, all of us all of you are going to just end up with higher mortgage rates, savings and pensions that are eaten away and misery for millions. I don't want that to happen. And that's why I'm so focused on gripping inflation first.”

Mr Sunak denied stabbing Mr Johnson in the back after an audience member said his resignation was a cynical ploy to get into No10.
He said an economic disagreement with the PM lay behind it, and pointed out scores of ministers had also quit.

He denied ever benefitting from the use of tax havens, including when he worked in America. Asked if he would drop out the race if he looked beaten, he said he would “fight incredibly hard till the last day” .