Liz Truss is under pressure from Tory MPs to rewrite the ‘mini’ budget

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Liz Truss faced mounting pressure from recalcitrant Tory MPs on Wednesday to overturn last month’s controversial “mini” budget – including a £17bn plan.

The Prime Minister insisted at a “funeral” meeting of Tory MPs in Westminster that she could stick with her £43 billion unfunded tax cuts and fill the tax gap without cutting public spending.

A Tory MP at the 1922 Backbench Committee meeting said the mood was “buried, appalling” and added: “I was shocked at how brutal it was.” But another said Truss was “calm, polite and been confident in dealing with some pretty blunt questions.”

Truss is being urged by a growing number of Tory MPs to scrap or phase out the introduction of tax cuts rather than embark on years of politically painful pressure on public spending.

Mel Stride, Tory leader of the Commons Treasury Committee, said Chancellor Kwasi Kwarteng should “embark on a clear change of course, rather than just developing other measures that try to close the budget loop”.

A former cabinet minister said: “There will have to be a trundle, a deferral of some policies, like corporate tax.” Kevin Hollinrake, another Tory MP, said the tax cuts should be “rolled in over time”.

Kwarteng’s September 23 tax return included a proposal to reverse a proposed increase in corporate tax from 19 per cent to 25 per cent due to come into effect in April, at a cost of £17 billion. He said it would help spur growth.

But Tory MPs have pointed out that business groups had not asked for the proposed increase to be reversed; Many companies wanted other cuts, including business rates.

“We’re doing a whole bunch of unpopular things to pay for tax cuts nobody wanted,” said one minister.

Kwarteng is told by colleagues he is determined to keep corporate taxes low, but some Tory MPs argue he may need to let the tax rise first – perhaps to 22 or 23 per cent – before gradually lowering it.

Truss admitted before the 1922 committee that Kwarteng’s fiscal event had been rushed, acknowledging that “the ground could have been better prepared” with the markets.

But she insisted that the government’s plan to shield homes and businesses from rising energy bills shows the government is listening to voters’ concerns.

The Prime Minister was greeted at the meeting with a traditional rap on desks, but was soon faced with questions about rising mortgage rates and the party’s falling poll numbers. “You could taste the looming defeat in the air,” said one MP.

Rob Halfon, a veteran Tory MP for Harlow’s Labor seat, accused them of “destroying labor conservatism and everything the party has done for the last 10 years”.

Many economists, including Gemma Tetlow of the Institute for Government, questioned how Truss could deleverage in the medium term without either reversing some of her tax cuts or reining in spending.

Ben Zaranko of the Institute for Fiscal Studies said: “If the chancellor is serious about ensuring that debt falls as a fraction of national income and real cuts in any part of public spending are out of the question, then he needs to look around reverse the tax cuts in its latest mini-budget and/or announce new tax hikes.

“It really is that simple,” he added. “According to our central projection, even if he reversed all the remaining tax cuts on his mini-budget, he would still have to find more. When all spending cuts are off the table, that means tax hikes.”

Meanwhile, Business Secretary Jacob Rees-Mogg suggested that the Office for Budget Responsibility, the independent spending monitor that will assess Kwarteng’s medium-term budget plan on Oct. 31, was not entirely reliable.

“His record of accurate forecasting wasn’t particularly good,” he told ITV pesto on Wednesday evening. “So the job of chancellors is to make decisions in the round rather than assuming there is a single forecaster who hits the nail on the head.”

He added: “There are other sources of information. The OBR is not the only organization that can make predictions.”

Labor leader Sir Keir Starmer told MPs on Wednesday that the government’s economic plan, which has turbulent markets and led to a surge in gilt yields, is “madness” and called on Truss to stop the “kamikaze Budget” to rewrite.

Truss insisted she is sticking with the government’s existing spending plans until 2024, but these already imply serious pressure on public services, which need to come up with £18billion in savings to withstand inflationary pressures.

Kwarteng is expected to introduce further spending restraint beyond the expected 2024 general election. The Chancellor is expected to save £5billion a year by not returning to a Tory Manifesto pledge to spend 0.7% of GDP on foreign aid – the level currently stands at 0.5% – but it will be difficult to find other savings.

Labor claims spending slack will mark a return to ‘austerity’.

https://www.ft.com/content/23eb24d3-5668-4fb0-adcd-c493e737d2e9 Liz Truss is under pressure from Tory MPs to rewrite the ‘mini’ budget

Adam Bradshaw

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