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Penny Mordaunt under fire for claiming fuel tax cut is ‘self-funding’ as revenues rise

Penny Mordaunt has sparked a row over her plan to cut fuel tax by denying it would blow a multi-billion pound black hole in Treasury finances – because revenue is rising.

The claim that the cut would be “self-funding” was dismissed by a key supporter of Rishi Sunak, who accused his rivals of “fairytale” economics in the Tory leadership race.

Dominic Raab, Deputy Prime Minister and Sunak supporter, urged Ms Mordaunt to produce a ‘serious analysis of self-funded tax cuts’ to back up her argument.

He said the claim was not “particularly credible”, adding: “And, of course, the big question is what impact would that have on inflation?”

The row over a policy based on making driving cheaper comes amid criticism of the campaign to undermine the UK’s legal commitment to achieve net zero carbon emissions by 2050.

Ms Mordaunt, the race favorite among Conservative Party members who will choose the winner, pledged ‘immediate and targeted support to help reduce the cost of living’ by halving VAT on fuel.

The levy will bring in around £15.4billion in tax to the Treasury this year, meaning the cut would potentially cost £7.7billion – although it is understood it could only last around six months, costing £4.5 billion.

Ms Mordaunt described the impact as ‘neutral’, telling the BBC it was ‘because you get extra Exchequer revenue on fuel’.

His aide later clarified that she did not mean it was neutral because motorists would buy more fuel and drive more, but that the Treasury enjoyed a “windfall gain” from rising fuel prices, which would be deleted.

The issue of taxation has dominated the leadership race, although there is a close contest between cuts now – or in the near future, under Mr Sunak, the former chancellor.

Ms Mordaunt has also pledged to raise income tax thresholds at an immediate cost of around £3billion and has not ruled out canceling the planned rise in corporation tax for a annual cost of £17 billion.

Liz Truss, the Foreign Secretary, went even further, with an unquantified £30billion pledge to halt corporate tax hikes, suspend green energy levies and d reverse the National Insurance hike to fund the NHS.

Mr Raab told Sky News Sophy Ridge on Sunday programme: “You cannot borrow to get out of an inflationary crisis.

“If people are suggesting that we should make cuts to the NHS, at a time not just of Covid, but of all the other non-Covid NHS challenges, they need to clarify where they are coming from.

“We all want to leave people with more money in their pocket. But if you cut taxes and inflation robs people of that money because it’s worthless or interest rates go up and their mortgage is more expensive, then frankly, that’s a false economy.