Liz Truss on Sunday admitted she had to win the “hearts and minds” of Conservative MPs to support the new British prime minister’s controversial package of tax cuts, supply side reforms and public sector curbs. But a revolt is building.
The Tories’ poll ratings are in freefall, and Michael Gove, a former cabinet minister, is among those refusing to commit to voting for a plan that is “not Conservative”. The markets remain highly sceptical.
As the ruling party’s annual conference gets under way in Birmingham, Tory MPs are insisting something has to give. But none of the options are attractive so how might the economic and political crisis play out for the Truss administration?
Will Truss U-turn on the ‘mini’ Budget?
The prime minister has said she will stick to her guns, insisting the so-called “mini” Budget will boost growth. But the chorus of criticism among Conservative MPs is rising and she may not be able to get the measures through the House of Commons, threatening her survival.
A finance bill will have to be passed at some point, although Truss may try to stall until the new year. But by then, the pressure to reverse course may be irresistible. An emergency Bank of England scheme to buy government debt, which stabilised markets last week, expires on October 14.
Chancellor Kwasi Kwarteng’s plan blew a hole in the public finances with a £17bn reversal of a corporation tax rise — regarded by business as a low priority — and a £13bn national insurance cut, which will mainly help the better off.
But most Tory anger is directed at the plan to scrap the 45 per cent top rate of income tax, a policy which Truss admitted on Sunday had not been discussed with the cabinet, let alone Tory MPs.
CBI director-general Tony Danker hardly helped things when he told Sky News: “If you ask me for 30 measures that are going to drive up growth, I wouldn’t put it in the top 30.”
Julian Smith, former Tory chief whip, spoke for many colleagues on Sunday when he tweeted: “We cannot clap for carers one month & cut tax for millionaires months later.”
Lord Ed Vaizey, a Tory former minister, said: “Of all the options, I think a U-turn would be the most disastrous. It would look terrible.”
Will Tory MPs allow Truss to pursue ‘Austerity II’?
Ministers have already been told to find “efficiency savings” in their departmental budgets to help balance the books, even as high inflation is putting public services under huge pressure. Truss has also acknowledged that real terms cuts to benefits next year are under consideration.
But during the Tory leadership contest in July, Truss said: “I’m very clear, I’m not planning public spending reductions.” Her predecessor Boris Johnson recognised that “austerity” was political poison and refused to use the word.
One Tory MP representing a working class seat said the idea of cutting benefits or public services while simultaneously offering tax cuts to the rich was “deranged”.
Kevin Hollinrake, Tory MP in the northern seat of Thirsk and Malton, said: “Many will conclude that this new reliance on cuts to balance the books are an afterthought in the hope that they’ll calm the markets.
“The reality is that even if they exist they are likely to be controversial and face huge resistance in parliament.” A senior Tory MP added: “There will be battles if they try to cut benefits.”
Will Truss sack Kwarteng?
Tensions have emerged between the prime minister and chancellor in recent days, notably over how to respond to the market turmoil that followed the “mini” Budget. Could he be made a scapegoat?
Truss on Sunday sounded at times like she was distancing herself from Kwarteng, telling the BBC the controversial plan to axe the 45 per cent top rate of income tax was “a decision the chancellor made”.
She also admitted the government had failed to prepare the ground for the “mini” Budget, another implied rebuke of the Treasury, although Truss said she had learnt the lesson.
Number 10 and Number 11 deny any split. An ally of Kwarteng pointed out that technically it was the chancellor who makes all tax decisions, while adding: “The prime minister and Kwasi are in lockstep on this.”
Axing Kwarteng would not just be painful for Truss — they are old friends — it would be a dramatic admission of defeat. Tory MPs know that Truss, as much as Kwarteng, was behind the plan. Truss’s aides said the idea of removing the chancellor was “absolute nonsense”.
Will the Conservatives oust Truss?
Most Conservative MPs, even Truss’s critics, want to give the prime minister time to prove she can get a grip on the situation, but they warned the crisis could come to a head within weeks if she failed.
“If interest rates are at 5 per cent at Christmas and our constituents can’t pay their mortgages, people won’t stand idly by,” said one MP, while admitting the voters would be bewildered by yet more Tory regicide.
Removing a prime minister who has been in office for less than a month would be an extreme outcome, but some Tory MPs are speculating on the possibility of a quick strike to remove her if she cannot turn things around.
One option, floated by supporters of Rishi Sunak would be for the party to change its leadership rules to allow the former chancellor to be installed in Number 10 without another contest.
“Given the nature of the problem is economic, Rishi is the only answer,” said one ally of the man who lost to Truss in the Tory leadership contest. Sunak is not attending this week’s conference in Birmingham.
But others warned party activists would not tolerate being denied their say in the choice of leader. “I’m not sure the membership would wear it,” said one former cabinet minister.
Some Tory MPs would see the removal of Truss as a chance to reinstate Johnson. “The prospect of Boris again looms,” lamented one Tory grandee.