Allies of the former chancellor say he changed outdated rules to reflect need in rural areas.
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A clip has emerged of ex-Chancellor Rishi Sunak saying he diverted public money from “deprived urban areas”.
In a video leaked to the New Statesman, the Tory leadership candidate tells an audience in Tunbridge Wells, Kent, he wanted to ensure “areas like this” got the funding they deserved.
Sunak allies say he was referring to changing “outdated” rules to better reflect need in rural areas and towns.
Labour said the leadership race was revealing the Tories’ “true colours”.
The party’s shadow levelling up secretary Lisa Nandy said: “It’s scandalous that Rishi Sunak is openly boasting that he fixed the rules to funnel taxpayers’ money to prosperous Tory shires.
“This is public money. It should be distributed fairly and spent where it’s most needed – not used as a bribe to Tory members.”
In the clip – filmed on 29 July – Mr Sunak says: “I managed to start changing the funding formulas, to make sure areas like this are getting the funding they deserve.
“We inherited a bunch of formulas from Labour that shoved all the funding into deprived urban areas and that needed to be undone.
“I started the work of undoing that.”
A spokesperson for Mr Sunak said: “Levelling up isn’t just about city centres, it’s also about towns and rural areas all over the country that need help too.”
“Travelling around the country, he’s seen non-metropolitan areas that need better bus services, faster broadband in towns, or high quality schools. That’s what he’ll deliver as prime minister.”
And Tees Valley Mayor Ben Houchen – a Sunak supporter – argued that the former chancellor had been talking about “the local council funding formula and how it discriminated against non-metropolitan areas in favour of cities – by giving them less money for things like adult and children services, highways and fire”.
But Conservative MP and Truss ally Jake Berry tweeted: “In public Rishi Sunak claims he wants to level up the North, but here, he boasts about trying to funnel vital investment away from deprived areas? He says one thing and does another.”
A Truss campaign source said: “Levelling up isn’t about pitting one area of the country against another, or laying dividing lines between urban v rural, towns v cities.
“It is about unleashing growth and making sure every individual has the chance to thrive. Liz has a plan to create an aspiration nation based on equality of opportunity, and will deliver it in a conservative way.”
The comments were made as part of Mr Sunak’s campaign bid to replace Boris Johnson as Conservative leader and prime minister.
He is competing against Ms Truss, who polls suggest is more popular among Conservative members.