Liz Truss’s leadership was in fresh danger on Wednesday with calls from senior Tories to reverse further proposed tax cuts and MPs accusing her of “erasing” Tory values.
As the cost of government borrowing rose further, Truss used his second PMQs appearance to “absolutely” rule out further spending cuts, rather than allow borrowing to rise over the next few years.
The remarks failed to calm markets, with the price of 20-year UK bonds hitting fresh lows on Wednesday afternoon after the Bank of England insisted its £65bn support package to the market of bonds would end on Friday.
Liz Truss pledges ‘absolutely’ not to cut public spending at PMQs: video
On the day of their first parliamentary confrontation since the Conservative party conference, MPs renewed serious talks about the possibility of replacing her. The Prime Minister has pledged to increase engagement with concerned MPs with a series of roundtables over the next week.
No 10 has publicly denied there is any further examination of the tax cuts announced in the mini-budget, including tweaks to the timing of the income tax cut or a reassessment of the corporation tax rise cancelled.
Former chancellor Sajid Javid and Treasury select committee chairman Mel Stride expressed fears about the current approach and suggested the Treasury should look again at the measures announced by Chancellor Kwasi Kwarteng last month .
At a 1922 Committee meeting, MPs described his performance as “simply appalling” and raised serious concerns about mortgage rates and polls showing a large Labor lead.
The chairman of the education select committee, Robert Halfon, told Truss he had “destroyed the last 10 years of Labor conservatism”, citing achievements under David Cameron and Boris Johnson, such as apprenticeships and rising standards, and comparing these priorities with tax cuts and bank bonuses. Julian Lewis MP asked if Truss planned to compensate mortgage holders.
Leaving the room, one MP said the atmosphere was “funereal” and another said the Prime Minister had “done absolutely nothing to reassure his colleagues”. Another described the situation as impossible.
In tweets shortly before the appearance of Truss in 1922, Stride said there had been a question about whether “any plan that does not now include at least some element of backsliding in the fiscal package can really satisfy the markets”.
He tweeted: “Credibility may now be tipping towards evidence of a clear change in direction rather than proposing other measures that attempt to square the fiscal circle.
“The chancellor will only get one chance to get his plans and forecast right. He must take no chances. There is too much at stake for all of us.”
Stride told the chief secretary to the Treasury, Chris Philp, in the House of Commons that he thought the government should abandon further planned tax cuts, going beyond the U-turn on abolishing the top tax rate of 45% that Truss has already announced.
“Given the enormous challenges, there are many, including myself, who believe that it is quite possible that he will simply have to go back to the fiscal announcements that he made on September 23rd,” Stride said.
Javid said in a speech at the Legatum Institute that the government wanted to cut taxes more and spend more on the energy price guarantee than Truss had promised in his leadership campaign.
“I’m not going to try to second-guess how you can do that, but you’re going to have to try to show that the numbers add up because the debt is going to come down in the medium term,” he said.
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Another member of the Treasury select committee, Kevin Hollinrake, said he also thought the tax cuts should be reviewed, including the possibility of staggering their introduction.
“I think it’s better to have looked at this more carefully in the context of what’s happened over the last few weeks and say, ‘I think we’ve got some of it wrong and these tax cuts have to come in over time,'” he said. to say. he told the BBC.
Truss’ refusal to consider further changes comes as fears grow within the government about the scale of the challenge ahead.
Downing Street has acknowledged they will not pre-announce the eight supply-side reforms expected to underpin Kwarteng’s statement by October 30, and some are unlikely to be ready until the statement. Several announcements, including on planning and broadband, have already been rejected.
Philp told MPs that ministers would stick to the latest government spending review rather than impose cuts on departments. Spending will rise in line with the government’s measure of inflation that tracks the cost of public spending – the GDP deflator – and stands at around 3.7%.
The Institute for Fiscal Studies said in a report earlier this week that Truss could only keep his tax cuts and have a credible deficit reduction plan if he announced £60bn worth of spending cuts in 2026-27.
One former minister suggested Truss would stick to the public spending envelope for now, meaning departmental cuts would be restricted to those required by inflation.
It could then try to reassure markets by announcing deep cuts will come once the next three-year round of spending begins in 2025-26.
“It is not a solution because it means that we will go to the next general election with an austerity manifesto, and who will vote for it?” said the former minister. “We would block the move and the markets know we would block it, which means even more uncertainty and more financial consequences.”