Tory leadership race: Liz Truss's tax plans would lead to spending cuts with either future Prime Minister set to 'damage Scotland'

Economists have warned Liz Truss’s plans for the economy will lead to lower spending as the foreign secretary claimed her ambitious tax cut proposals costing at least £30 billion a year would be “affordable”.

In an analysis piece, experts at the Institute for Fiscal Studies (IFS) cautioned plans from Ms Truss – the favourite among Conservative members who will vote between the foreign secretary and former chancellor Rishi Sunak – would inevitably lead to lower spending.

The leadership contender has set out plans for an emergency budget to reverse the rise in national insurance, scrap the planned corporation tax increase and suspend the green levies on energy bills.

And she said she would launch a review into taxation with the aim of ensuring people are not penalised for taking time out of work to care for family or children.

In contrast, Mr Sunak was understood to not be envisaging cutting personal taxes until at least autumn next year to avoid fuelling inflation.

The SNP said either candidate would lead to Scotland continuing to suffer inside the Union.

Lower spending could also lead to a lower budget for the Scottish Government if tax cuts lead to further reductions in spending on devolved areas such as transport, health or education.

Foreign Secretary and Tory leadership candidate, Liz Truss speaks to the press during a visit to the children's charity, Little Miracles in Peterborough, to speak about the cost-of-living pressures and her vision to ease the burden on families.

Speaking to BBC Radio 4, Ms Truss rejected accusations her plans were a “gamble” and claimed high taxes had “choked off” growth across the UK.

She insisted increasing borrowing and cutting taxes would not increase inflation, insisting the “orthodoxy” of the Treasury and the opinions of many leading economists had failed to deliver growth.

“What is the gamble is what we’re doing at the moment because, currently, the United Kingdom is projected to head for a recession,” she said.

“So we need to do something different in order to get growth going, in order to put money in people’s pockets.”

However, experts at the think-tank IFS warned a reversal of the national insurance rise would “not be nearly sufficient to make the reform pay for itself” and warned about inevitable spending cuts and fiscal rules being broken.

They said: “However government debt is structured and whatever borrowing the fiscal rules allow in the short run, lower taxes can only be paid for in the long run by lower public spending than we would otherwise see.

"And while tax cuts can promote economic growth, none of the tax cuts proposed by any of the candidates during the Conservative leadership contest would do this enough to pay for themselves.

“They [the pledges] will mean higher borrowing or less public spending, or some combination. Without spending reductions, the tax promises would likely lead to the current fiscal rules being broken, and Ms Truss has hinted that the fiscal rules may change.

"In this context, it is always important to remember that whatever a chosen set of self-imposed fiscal rules might allow in the short term, in the end lower taxes do mean lower spending.”

The SNP’s Paul McLennan said only independence would “free” Scotland from the “shackles of Westminster control”, with the country sure to “continue to suffer”.

The MSP said: “The two contenders were both senior and prominent members of Boris Johnson’s Cabinet, which inflicted the most chaotic government in living memory on the people of this country.

“They were both enthusiastic supporters of the decade of Tory austerity and both are Brexit zealots, despite the tidal wave of evidence that this Tory obsession is making us all poorer and significantly adding to the cost of living crisis.

“The UK’s economy has consistently underperformed in comparison with other European neighbours of a similar size to Scotland. This direction of travel has been clear for years now and will continue in the same downwards direction regardless of which hard right ideologue gets the No 10 keys next.”

The financial plans of the final candidates for prime minister were growing ever more divided as they battled for the votes of the Tory membership required to win the race for No 10.

Robert Joyce, the deputy director of the IFS, put Ms Truss’s tax cuts at “more than £30bn per year – and possibly considerably more”.

But Ms Truss told broadcasters during a visit to Peterborough: “My plans do not exceed the headroom. I’m very clear that they are about £30bn worth of costings, and those are affordable within our current headroom.”

In his pitch to Conservative members after MPs selected the final two candidates, Mr Sunak argued only he is capable of beating Labour in a general election.

But Ms Truss hit back by saying the Tories would struggle to win under the economic policy written by Mr Sunak when he was in No 11.

Ms Truss said: “I think the problem is that if we continue with our current economic policy, which is forecast to lead to a recession, it will be very hard for Conservatives to win an election.

“We are in economic difficulty, the whole world is in economic difficulty. It’s not time for business as usual.”

Mr Sunak has vowed not to cut taxes until the soaring rates of inflation are under control, fearing that such a move could make the crisis worse.

It emerged on Thursday he does not believe he would be able to cut personal taxes until at least autumn 2023, a view that is likely to further anger the Tory right.

The IFS noted his plans see tax heading towards its highest sustained level in 70 years.

Mr Sunak insisted he was a “Thatcherite” as he sought to address the concerns of Tory members that he backed a high-tax, large state approach.

Some fear Mr Sunak may have blown his chances by resigning as chancellor, in a move that has angered some Conservatives by helping bring about Boris Johnson’s downfall.

Ms Truss insisted she would have liked Mr Johnson to have carried on as Prime Minister, describing his record as “extremely positive”.

And she admitted she was "wrong" to back Remain in the 2016 EU referendum, as she declared she did not support sending British soldiers to Ukraine to help fight against Russia.

Mr Sunak was the parliamentary party’s favourite, winning 137 votes to Ms Truss’s 113 among Tory MPs.

But bookmakers placed the Foreign Secretary as the frontrunner, with early indications suggesting she is more popular with Tory members ahead of a summer of campaigning.

A small, unrepresentative poll of 730 members on Wednesday and Thursday again saw Ms Truss in the lead.

Some 49 per cent of respondents said they would back the Foreign Secretary, while 31% chose Mr Sunak. The rest were undecided or said they would not vote.

The pair battled to win the support of local politicians on Thursday when they took part in a private hustings for the Conservative Councillors’ Association.

They will then tour the UK to take part in 12 hustings for the Tory members who will vote for their next leader, with the result being announced on September 5.

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