It is understood Ms Truss, who is favourite to win the Tory leadership contest to become the new prime minister on September 5, has discussed the move with her advisors as part of a range of measures to offset soaring energy bills, The Telegraph reports.
If she wins the contest, it is understood the Treasury will present Ms Truss with a number of options including a 2.5 per cent or 5 per cent reduction in VAT, from the standard rate of 20 per cent.
The plans are said to be based on Gordon Brown’s move to cut VAT from 20 per cent to 17.5 per cent in December 2008 following the global financial crash.
A five per cent cut – the largest ever – would cost taxpayers £38 billion for a year and temporarily reduce inflation by 2 per cent, according to analysis by the Institute for Fiscal Studies (IFS), the newspaper reports. Such a cut would reportedly save the average household more than £1,300 a year.
A source told The Telegraph: “Cutting VAT is the nuclear option. They [the Treasury] have talked about the Gordon Brown approach that he took at the time, when it looked as though consumer confidence was falling.
“They are talking about the last big economic shock that hit the whole economy and consumers in 2008, and the Treasury’s response to that.”
A source from Rishi Sunak’s campaign said a 5 per cent VAT cut would be “incredibly regressive” and cost north of £30 billion.
Ms Truss’ rival has already said he will provide support for the most vulnerable, arguing efforts should be focused on poorer households and pensioners through winter fuel and cold weather payments.
In an article for Mail+, Boris Johnson acknowledged the next few months would be difficult as “eye-watering” energy bills hit Britons hard, but he said the UK would emerge “stronger and more prosperous (on) the other side”.
He said “colossal sums of taxpayers’ money” had already been committed to helping people pay their bills and insisted his successor would announce a “huge package of financial support”.
Rishi Sunak warns voters will never forgive Tories failing to act on energy bills
The news comes as an exclusive poll for The Independent found fewer than half of Tory voters believe solutions put forward by Ms Truss and her rival Rishi Sunak for tackling the energy crisis are good enough.
Just 48 per cent of Tories think Ms Truss can ease the cost of living emergency, while only 44 per cent think Mr Sunak has the right plans to tackle the crisis set to cripple household budgets.
Among the wider public, just over half (57 per cent) are “not confident” that the foreign secretary has a plan for the economy, while more than 55 per cent reject Mr Sunak’s ability to act, according to the survey by Savanta Comres.
The poll comes after Chancellor Nadim Zahawi warned that even people earning around £45,000 – 50 per cent more than the average wage – will need significant help to manage their energy bills.