Nadhim Zahawi sparks backlash after appearing to propose 20% cuts to department budgets to fund tax slashing measures

Chancellor has previously suggested reversing planned hike in corporation tax

Tory leadership contender Nadhim Zahawi has sparked a backlash after appearing to suggest he would force government departments to cut runnings costs by 20 per cent in order to fund tax slashing measures.

The newly appointed chancellor, who launched his leadership bid over the weekend, later clarified, however, that he was backing an existing policy unveiled by Boris Johnson to cut the size of the civil service by a fifth.

Just days into his new role, Mr Zahawi floated reversing his predecessor’s Rishi Sunak’s planned hike in corporation tax, which would raise billions, and reducing income tax if he wins the contest to replace Boris Johnson.

He said on Monday he wanted to “bring down the cost of government to give me the headroom to make those changes”, telling Sky News: “Nothing’s off the table”.

Pressed on how he would fund tax cuts, Mr Zahawi said that while he was education secretary he engaged in the “tough exercise” of reducing the cost of the department by 20 per cent while delivering manifesto pledges.

Sparking confusion, he told Sky News: “I think it’s only right that across government we do this exercise, it’s an important exercise. It’s only right that we exercise fiscal discipline when it comes to public-sector pay.

“Why? Because if we do that, we can bear down on inflation. That in itself brings down inflation.”

Asked whether he wanted to reach the 20 per cent goal in every department, Mr Zahawi said: “Well, that’s what I want to make sure we get to; that will give me the headroom to be able to deliver tax cuts which I want to deliver.”

Critics seized on his comments, with Labour’s shadow business secretary saying: “The most notable feature of the contest so far is this sort of fantasy economics”. The left-wing campaign group Momentum added: “It’s austerity make two, all to pay for a mass transfer of wealth to the richest”.

But after Mr Zahawi’s interview was aired, his campaign team told The Independent the chancellor was referring to an existing controversial policy unveiled by Boris Johnson to reduce the civil service headcount.

The outgoing prime minister was warned of strike action after telling his cabinet in May that he wanted to reduce the civil service headcount by a fifth — a reduction of 91,000 staff — to reduce the cost of government.

During the interview, Mr Zahawi also pledged to publish his tax returns if he wins the leadership contest after The Independent revealed HMRC experts are investigating his financial affairs.

The leadership hopeful claimed to be the victim of a “smear” campaign – but vowed to “answer any questions that HMRC has of me” and publish his accounts annually if he wins the race to be the next prime minister.

The cabinet minister sidestepped questions over his personal wealth, however, saying “it’s not right to go into numbers because I will probably get it wrong” when asked just how wealthy he is.

Jeremy Hunt, the former Tory cabinet minister, another of the 11 candidates running to succeed Mr Johnson, also stressed on Monday that he hoped to “cut all taxes” and reduce the cost of government.

Asked about rival Mr Zahawi’s proposals, Mr Hunt said: “It’s always possible to make efficiencies and I think it’s something we should always be looking at.”

He added: “But I think the fundamental thing is how do we move ourselves from being an economy that’s becoming one of the higher-taxed economies for businesses, making it more difficult for businesses to get off the ground, to one which people say if you’re going to set up a business, it has to be in Britain.”