Conservative candidates vying to replace Boris Johnson have been warned that a bidding war of unfunded tax cuts could lead to even higher inflation.
Chancellor Nadhim Zahawi pledged on Monday to cut income tax in 2023 and 2024 and abolish green levies on energy bills for two years.
Attorney General Suella Braverman argued there is “no alternative but radical tax cuts” amid a cost-of-living crisis as rivals sought to match each others’ bids.
Foreign Secretary Liz Truss pledged to cut taxes “from day one” while billing herself as an experienced candidate to set herself apart from opponents with less Cabinet experience.
Jeremy Hunt, who has been both health and foreign secretary, expressed a desire to “cut all taxes” in an interview with BBC Breakfast.
But Tory former chancellor Lord Lamont warned of the leadership contest descending into a “Dutch auction” and that “unfunded, irresponsible tax cuts” would drive up interest rates.
A row also broke out among the campaigns, with Robert Jenrick criticising rivals for pledging unachievable tax cuts at a time when the party’s “credibility” is under strain.
The former Cabinet minister, who is backing ex-chancellor Rishi Sunak, told Times Radio that “announcing fantasy tax cuts to help get through a leadership election, I think, is unwise”.
Labour leader Sir Keir Starmer accused the Tories of plucking £200 billion of uncosted commitments from the “magic money tree” in an “arms race of fantasy economics”.
Lord Lamont told Radio 4’s World at One programme: “I’m increasingly concerned because I think there is a danger that this leadership election is going to descend into a sort of Dutch auction of tax cuts which are not necessarily affordable, not necessarily rightly timed.
“There is a danger at this point when the public finances, the amount we are borrowing, is not in a strong state.”
The Conservative peer added: “You can’t grow your way out of inflation, you’re just likely to add to it if you attempt to do that.
“I don’t suppose many people want to see interest rates above the level of inflation but if we start giving unfunded, irresponsible tax cuts the Bank of England will be faced with difficult choices indeed.”
Eleven candidates have entered the race so far, with Home Secretary Priti Patel and Brexit opportunities minister Jacob Rees-Mogg also believed to be considering runs.
Ms Braverman and Mr Zahawi made speeches at the Thatcherite Conservative Way Forward group as they try to win the support of fellow MPs, before Tory members vote for the next prime minister.
The Attorney General rejected critics’ warnings that cutting taxes too quickly would be the wrong move, arguing “in a cost of living crisis with spiralling costs, we know there is no alternative but radical tax cuts”.
Mr Zahawi, who was appointed Chancellor before shortly moving to push Mr Johnson out of office, said tax and spending had been “skyrocketing” for “too many years”.
He said he would reduce income tax to 19p next year and 18p the following year, while a member of the audience appeared to faint as temperatures soared during the event at the Churchill War Rooms in Westminster.
Ms Truss, seen as one of the likely frontrunners, formally entered the race with a slick video under the tagline “Trusted to deliver”.
The Foreign Secretary highlighted her work on trade deals and the controversial Northern Ireland Protocol Bill and said a prime minister with “experience, who can hit the ground running from day one” is needed, in a possible dig at her rivals without Cabinet experience.
She told the Daily Telegraph she would “start cutting taxes from day one”, and would cut the National Insurance hike introduced in April, mirroring a pledge of rival Sajid Javid.
One of her key backers, Business Secretary Kwasi Kwarteng, accepted that public spending would need to be reduced to fulfil pledges of tax cuts.
Mr Kwarteng warned of possible “very dim prospects” if growth is not created to avoid “stagflation”, where slow economic growth coincides with high inflation.
“And that’s why we need to put incentives in the economy, and the way to do that isn’t by raising tax,” he told BBC Radio 4’s Today programme.
He conceded “there needs to be spending reductions” to fund tax cuts, but refused to say which services would be hit.
Transport Secretary Grant Shapps released a snappy video appealing to the Tory MPs who will whittle down the candidates by touting his experience as a campaigner.
With Conservatives nervous of losing their jobs after Mr Johnson led the party to dire recent electoral performances, Mr Shapps told MPs: “I can help you win your seat.”
Mr Johnson insisted the outcome of the bid to replace him “will be good” despite multiple candidates having worked to oust him, but he declined to back any of the candidates.
“I wouldn’t want to damage anybody’s chances by offering my support,” he told broadcasters during a visit to the Francis Crick Institute in London.
Tom Tugendhat, the chairman of the Commons Foreign Affairs Committee who has never been a minister, pledged to cut taxes on jobs and fuel and painted his candidacy as a “clean start”.
The 1922 Committee of backbench MPs will elect a new executive committee on Monday, before drawing up a timetable for the leadership contest.
An announcement on the schedule for the leadership campaign is expected to follow later that evening.
The process could be tightened so the final two candidates can be voted for by Tory MPs before the Commons enters the summer recess on July 21.
That would give the chosen pair the summer to campaign for the backing of Conservative Party members, who ultimately select the next Prime Minister.