UK PM hopefuls Sunak and Truss clash over recession warning in debate

LONDON, Aug 4 (Reuters) - British foreign minister Liz Truss clashed over the future of the economy with former finance minister Rishi Sunak on Thursday as the two contenders to be Britain's next prime minister debated the Bank of England's warnings of a long recession.

Truss is up against Sunak to win the votes of 200,000 members of the Conservative Party who will by Sept. 5 choose a replacement for Boris Johnson, who was forced to resign after a series of scandals.

The Bank of England said on Thursday that Britain faces a protracted recession as energy price-driven inflation squeezes household budgets. Tackling that crisis in the economy will fall to Truss or Sunak in a month's time. read more

Register now for FREE unlimited access to Reuters.com

Truss, the frontrunner in the leadership contest, said the central bank's prediction can be changed by cutting taxes. She said the government's decision to raise the tax burden to the highest level since the 1950s was to blame for pushing the economy towards a recession.

"We can change the outcome and we can make it more likely that the economy grows," Truss said in a televised debate.

"You simply can't tax your way to growth. I'm afraid that the taxes we have at the moment, a 70-year high, are likely to lead to a recession."

As finance minister, Sunak implemented the tax increases to pay for government support offered during the COVID-19 pandemic and to help Britons subsidise soaring energy bills. That has drawn criticism from many activists in the historically low-tax party.

Sunak said the projected surge in inflation reinforced his view that Truss would be reckless to increase borrowing and cut taxes now.

"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," he said.

Sunak said Truss's plan would lead to higher inflation and has instead pledged to cut taxes over time.

"Now, I am worried that Liz Truss's plans will make the situation worse," he said.

"If we just put fuel on the fire this inflation spiral, all of us, all of you, will end up with higher mortgage rates, savings and pensions that are eaten away and misery for millions. I don't want that for you."

Register now for FREE unlimited access to Reuters.com
Reporting by Andrew MacAskill; Editing by Daniel Wallis

Our Standards: The Thomson Reuters Trust Principles.