Prime Minister Liz Truss tried to keep her cool over the course of a tense Sunday at the Conservative Party conference in Birmingham, but finally admitted defeat in her hotel suite around 11pm.
Truss and her chancellor, Kwasi Kwarteng, met at the Hyatt Regency to consider whether a key chunk of his “mini-budget” could be salvaged. The verdict, as they sat somberly in a private room high above the city, was a resounding “no.”
Her quick about-face on his plan to scrap the top 45p tax rate announced just nine days earlier was the culmination of a series of tense discussions after his financial report sparked turmoil in financial markets and sparked widespread anger among Tory MPs voters.
Throughout Sunday, politics looked increasingly at risk. Michael Gove, the influential former cabinet minister, appeared on the BBC Sunday with Laura Kuenssberg program to argue that it is “displaying false values”.
Truss told colleagues she didn’t want the row over scrapping the 45p rate – which would benefit people earning more than £150,000 and costing up to £3billion a year – to be “the defining issue of my premiership”. going, and it was right for him to cut back their losses quickly. “It’s not the fight I wanted,” she said.
The cancellation of the policy was a crushing blow to the authority of Truss and Kwarteng – co-authors of the September 23 mini-budget – but they had no choice. “We had to tear down the plaster,” said a government insider.
The Prime Minister and Chancellor realized that amid the cost of living crisis, politics had bombarded the public: Tory MPs’ inboxes were overflowing with hundreds of angry messages from voters.
Many Conservative MPs had said they would not vote for the plan to abolish the 45p rate, making a defeat in the House of Commons certain. One said it’s crazy to think a Tory government could push through public spending cuts – to show ministers can reduce public debt over the medium term – while cutting taxes on the wealthy.
Kwarteng confirmed the turnaround in a tweet around 7.30am on Monday and said: “We get it. We listened.” He then had to endure a steamy BBC radio interview to explain the withdrawal.
The Chancellor’s allies admitted they knew the plan to scrap the 45p rate would be controversial but did not expect it to overshadow much of the rest of the mini-budget, including 40bn reforms to boost the economy economic growth.
“The big thing. . . was that it was a complete distraction from an important reform package,” said a Tory party insider.
The Chancellor asserted that he had not offered his resignation. “Why should he?” said an ally. Downing Street insiders said Truss was warned by some officials last week that she had to “lose the Chancellor”, but she told aides she “never” thought about it.
Some senior Tories speculated that Kwarteng could struggle to survive in the medium term. “The markets will never trust him again. How can he ever convincingly deliver a budget?” asked one MP. Other Conservatives suggested Truss could approach former Chancellor Sajid Javid if Kwarteng was forced to resign.
But Kwarteng’s sacking would remove a lightning rod for criticism and make Truss more exposed. They’re also old friends, and the prime minister and her chancellor have been planning his financial report together for weeks. “They are still completely united on politics,” said a Truss ally.
Senior Tory officials confirmed that the idea of scrapping the 45p rate was originally put to Truss by Chris Philp, Kwarteng’s deputy Treasury Secretary, during the Conservative leadership contest in August.
Philp insisted to friends he was “not the driving force” and the idea was one of 30 proposals in a strategy paper. But regardless of who came up with the proposal to scrap the 45p rate, neither Truss nor Kwarteng could escape guilt for going ahead with it.
Truss did not consult her cabinet on the plan to scrap the 45p rate, nor on the decision to reverse it. You and Kwarteng were the key decision makers.
A cabinet minister said she was not officially informed of the decision until 10am Monday – about two and a half hours after Kwarteng announced it.
Some ministers were confident, even pleased, with the decision. “It’s the nature of politics, if something doesn’t land, you can change course,” said a cabinet member.
Another minister added: “Even Margaret Thatcher sometimes changed course. We listened to backbenchers so people could stand by what we do.”
But the decision to abolish the 45p rate did not go down well in the “blue room”: a VIP area at the Tory conference where wealthy party donors congregate. “The service is amateurish,” said one of those present.
The political danger highlighted by the about-face was clear: Truss and Kwarteng now look like they could be pushed around by their political opponents in the Conservative Party.
Gove’s intervention – who backed former Chancellor Rishi Sunak rather than Truss to succeed Boris Johnson as prime minister – was seen by Tory MPs as an example of “Michael being on manoeuvres”, possibly for a future bid for party leadership.
The risk for Truss and Kwarteng is that the Conservatives, hoping to destabilize the new government – some intent on replacing it – could now seek to reverse other parts of the Prime Minister’s economic strategy.
Tory MPs, including Gove, have criticized the decision to remove the cap on bankers’ bonuses as a gift to Labour: it could become the next target for rebel attacks.
But Kwarteng is confident the rest of his mini-budget, including a £13billion cut in Social Security and a 1p cut in the property tax rate, will win cross-party support in Parliament.
A finance law to implement some of the measures, including the rollback of a proposed £17 billion increase in corporate tax, is not expected before the new year. Kwarteng is confident MPs will support the legislation.
It remains to be seen whether the row over scrapping the 45p rate will soften Truss’ ambitious supply-side reforms to boost growth.
When she became prime minister last month, she vowed to tackle long-standing issues around housing promotion planning and childcare affordability, but her failure on tax reform could give her food for thought.
A Conservative MP who supports Truss said: “If she didn’t want a Liz 2 billion tax cut she wanted to be radical, but she failed at the first hurdle.”
https://www.ft.com/content/5897a5d6-4bcb-4a33-a5a4-fe614721313b Truss finally admits defeat on tax breaks for the rich