Liz Truss has insisted tax cuts, not “handouts”, would help people with the cost-of-living crisis while her rival Rishi Sunak warned there was “no hope” the Tories would win the next election unless they get inflation under control.

Ms Truss said she would go ahead with vast tax cuts if she becomes prime minister, despite concerns they would further drive up rising prices.

Asked how she would help families with spiralling bills this winter, the Tory leadership hopeful told the Financial Times: “Of course, I will look at what more can be done. But the way I would do things is in a Conservative way of lowering the tax burden, not giving out handouts.”

It comes as energy consultancy Auxilione this week said the Government’s price cap, which sets bills for more than 20 million households in Britain, could reach nearly £4,000 a year from January.

New analysis from the Office for National Statistics (ONS) also shows that close to half (44%) of UK adults who pay energy bills found it very or somewhat difficult to afford them in the last two weeks of July.

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The Bank of England warned on Thursday the UK faces two years of falling household incomes, with inflation – currently 9.4% – set to soar to more than 13% and the economy to relapse into the longest recession since the financial crisis.

During a campaign visit to the West Midlands on Saturday, Ms Truss suggested her plans to halt “green levies” on energy bills, reverse the national insurance hike and implement supply-side reform could avert a downturn.

She told reporters: “What I’m about as a Conservative is people keeping more of their own money, growing the economy so we avoid a recession.”

Ms Truss pointed the finger of blame at Mr Sunak’s legacy as former chancellor, saying: “Under the plans at present, what we know is Britain is headed for a recession.

“That is not inevitable, but we need to avoid that by making sure our economy is competitive, that we’re encouraging businesses to grow and that we are keeping taxes low.

“Having the highest taxes for 70 years is not going to deliver that economic growth and it’s leading our country to a recession.”

She also challenged economic prognoses at a Tory leadership hustings in Eastbourne, Sussex, on Friday, saying that “forecasts are not destiny and what we shouldn’t be doing is talking ourselves into a recession”.

However, Mr Sunak argued that unless inflation is brought under control there is “no hope” for the party at the next general election.

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Taking a thinly-veiled swipe at his opponent, the former chancellor told the hustings: “The first thing we need to do in order to make sure we can win that election is have got through this inflation problem by then.

“That’s why I’m particularly worried about policies that risk making it worse and last longer.

“Because this is a problem that isn’t just for this winter. It’s a problem for next winter as well, and beyond.

“Because as the Bank of England said, they are worried about inflation becoming embedded – then there’s no hope that we’re going to win that next election. Absolutely none. It’s as simple as that.”

Jake Berry, a supporter of Ms Truss, defended her plans and denied tax cuts would lead to higher inflation.

The chairman of the Northern Research Group of Tory MPs told Times Radio: “People on the lower incomes will be absolutely terrified, quite correctly. So, the idea that enabling people to keep more of their own money will suddenly turn them into sort of spendthrifts, I, frankly, think is complete and utter nonsense.”

Elsewhere, Mr Sunak said “political correctness” is standing in the way of tackling child sex grooming gangs as he vowed to force police to record the ethnicity of those involved.

In an interview with GB News, he said: “It’s far more pervasive across the country than actually we all realise.

“We all know the reason that people don’t focus on it. It’s because of political correctness and they’re scared of calling out the fact that there’s a particular group of people who are perpetuating these crimes, and I think that’s wrong, and I want to change that as prime minister.

“I want to make sure that all police forces record the ethnicity of those involved, which currently is not done because people don’t want to do that.

“I want to create a brand new life sentence for those involved in grooming with very limited options for parole because I’m not going to let political correctness stand in the way of tackling this absolutely horrific crime.”

Ms Truss, who will be attending the Commonwealth Games in Birmingham later, is expected to set out economic reforms which her campaign team claims will “promote regional growth by reviewing funding to supercharge the right kind of investment”.

Her plans include reviewing the levelling-up formula to fix underinvestment in regional infrastructure and create low tax, low regulation “investment zones” or “full-fat freeports” on brownfield sites.

However, a campaign spokesman for Mr Sunak accused Ms Truss’s team of “copy and pasting” policies the former chancellor had already put in place.

They argued “investment zones” are simply a copy of the freeports he pioneered as chancellor and that Ms Truss’s plan to review the levelling-up formula comes nearly two years after he reformed it.

Ms Truss and Mr Sunak are seeking support from Tory members to be elected the next party leader and prime minister. Voting has begun, with the result to be announced on September 5.