Liz Truss has claimed her tax cut plans could avert the looming recession, after the Bank of England forecast 13% inflation and a downturn lasting more than a year. In a televised leadership interview, the foreign secretary was challenged about gloomy projections made by the Bank on Thursday, as it increased interest rates by 0.5 percentage points. “What the Bank of England has said today is, of course, extremely worrying. But it is not inevitable,” she said. “We can change the outcome, and we can make it more likely that the economy grows.” Truss and her Conservative leadership rival, Rishi Sunak, were each grilled by a studio audience made up of Conservative members, and Sky News presenter Kay Burley. Sunak, who appeared after Truss, stepped up his criticisms of her £30bn plan for unfunded tax cuts, claiming it would lead to “misery for millions”. “The lights on the economy are flashing red, and the root cause is inflation. I’m worried that Liz Truss’s plans will make the situation worse,” he said. “If we just put fuel on the fire of this inflation spiral, all of us, all of you, are going to just end up with higher mortgage rates, savings and pensions that are eaten away, and misery for millions.” But Truss insisted that “now is the time to be bold, because if we don’t act now, we are headed for very, very difficult times”, reiterating her policies of reversing the recent increase in national insurance contributions and halting planned increases in corporation tax. Asked what more she would do to deal with rocketing energy prices, Truss cited her existing policy of temporarily halting green levies that add about £150 to household bills. Truss rejected the idea of a windfall tax on the bumper profits of energy companies. “Shareholders are not all men in suits sitting in offices. There is no such thing as free money, and I just think we’ve got to be very careful if the UK gets a reputation for arbitrarily taking money in tax.” Sunak also said he would do more as prime minister to help hard-pressed consumers through the winter ahead. He recently announced a pledge to cut VAT on energy bills – a policy he had previously rejected. When asked about the recession, he said: “It’s not the tax burden that is causing the recession. That’s simply wrong. What’s causing the recession is inflation. That’s the root of the problems, not just here, but in America and elsewhere.” Truss was challenged robustly by two audience members – over the public finances, and her botched announcement of pay cuts for public sector workers. Jill of Tunbridge Wells accused Truss of failing to take seriously enough the need to balance the books. “The one thing Margaret Thatcher believed in was sound money,” she said. “Fifteen percent interest rates, I remember those days. I had to pay a mortgage of 15%, are we going back to that level again?” Truss replied “no”, and went on to stress the risks of high taxes for economic growth. Another audience member, Tom from Gateshead, pressed Truss on the plan for regional pay boards which she withdrew earlier this week. “Why should we trust your judgment?” Pointing out that it would have meant lower pay for public sector workers in his local area of Newcastle, he added: “Will you apologise because it was actually quite offensive?” Advertisement Truss replied: “I don’t think there is anything to be ashamed of, of saying publicly that this is not working as I wanted it to work, and therefore, I have changed the position on it.” Sunak was accused by an audience member, Steven, of plotting to overthrow Johnson, and resigning last month in a cynical bid to win the leadership. Citing the scandal of former Conservative whip Chris Pincher, who was promoted by Johnson despite multiple allegations of sexual misconduct, Sunak insisted “that was a serious ethical question that the government was on the wrong side of, again, and I couldn’t defend it”. By contrast, Truss gave a staunch defence of Boris Johnson. When Burley said she had “stood shoulder to shoulder with a man who has betrayed the office of prime minster”, Truss insisted: “Yes he made mistakes, that’s absolutely true; he said sorry for the mistakes he made – but I think it’s completely wrong to characterise him in that way.” Challenged about Truss’s broad backing among cabinet members and former leadership contenders, including his former boss Sajid Javid, Sunak stressed the Conservative grandees who have supported him, including former leaders William Hague and Michael Howard. In a show of hands after the show, Sunak was the clear winner among the audience of Conservative members. After the debate, Sunak announced a new housing policy, saying he would introduce a build out levy, which would charge developers a fee if they are given planning permission and fail to build the promised homes. He said the policy would help to promote homeownership – though he has also promised to tighten planning restrictions on green belt land. “I will do whatever it takes to build housing that is affordable and plentiful, while protecting the green belt – spreading the joy and fulfilment of homeownership, building the next generation of Conservative voters and keeping Labour out of power,” he said.