Liz Truss’ leadership was in fresh peril on Wednesday with calls growing among senior Conservatives to reverse more proposed tax cuts and MPs accusing her of “trashing” Conservative values. As the cost of government borrowing soared further, Truss used her second PMQs appearance to “absolutely” rule out further spending cuts, instead allowing borrowing to rise over the next few years. The remarks failed to calm the markets, with the price of 20-year UK bonds hitting new lows on Wednesday afternoon after the Bank of England insisted its £65bn package of support for the bond market would end on Friday.
On the day of her first parliamentary showdown since the Conservative party conference, MPs renewed serious conversations about the prospect of replacing her. The prime minister has pledged to step up engagement with restive MPs with a series of round tables over the next week. No 10 has publicly denied there is any new examination of the tax cuts announced in the mini-budget, including tweaks to the timing of the income tax cut or a reevaluation of the cancelled corporation tax rise. The former chancellor Sajid Javid and the chair of the Treasury select committee, Mel Stride, voiced fears about the current approach and suggested the Treasury would need to look again at the measures announced by the chancellor, Kwasi Kwarteng, last month. At a meeting of the backbench 1922 Committee, MPs described her performance as “just appalling” and raised serious concerns about mortgage rates and polls showing a hefty Labour lead. The chair of the education select committee, Robert Halfon, told Truss she had “trashed the last 10 years of workers’ Conservatism”, citing achievements under David Cameron and Boris Johnson such as apprenticeships and levelling up, and comparing those priorities to tax cuts and banker bonuses. The MP Julian Lewis asked if Truss was planning to compensate mortgage holders. Leaving the room, one MP said the atmosphere was “funereal” and another that the prime minister had “done absolutely nothing to reassure colleagues whatsoever”. Another described the situation as impossible. In tweets shortly before Truss’s appearance at the 1922, Stride said there had been a question over whether “any plan that does not now include at least some element of further row back on the tax package can actually satisfy the markets”. He tweeted: “Credibility might now be swinging towards evidence of a clear change in tack rather than just coming up with other measures that try to square the fiscal circle. “The Chancellor will only get one opportunity to land his plans and the forecast positively. 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 would have to abandon more planned tax cuts, going further than the U-turn on the abolition of the 45% top rate of tax which Truss has already announced. “Given the huge challenges, there are many – myself included – who believe it is quite possible that he will simply have to come forward with a further rowing back on the tax announcements that he made on 23 September,” 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 her leadership campaign. “I’m not going to try to second-guess how you can do it, but you’re going to have to try and show the numbers add up so the debt will be falling in the medium term,” he said. Another member of the Treasury select committee Kevin Hollinrake said he also thought there should be a fresh look at the tax cuts, including potentially 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 this wrong and these tax cuts need to be introduced over time’,” he told the BBC. Truss’s refusal to consider further changes comes as fears grow inside government about the scale of the challenge ahead. Downing Street has acknowledged that they will not pre-announce all eight supply-side reforms expected to underpin of Kwarteng’s statement before 30 October, with some unlikely to be ready until the statement itself. Several announcements, including on planning and broadband, have already been pushed back. Philp told MPs ministers would stick to the last government spending review rather than imposing cuts on departments. Spending will rise in line with the government’s measurement of inflation which tracks the cost of government spending – the GDP deflator – and stands at about 3.7%.
The Institute for Fiscal Studies said in a report earlier this week that Truss would only be able to keep her tax cuts and have a credible deficit reduction plan if she announced spending cuts worth £60bn by 2026-27. One former minister suggested Truss would stick to the public spending envelope for now, meaning that departmental cuts would be restricted to those required by inflation. She could then try to reassure the markets by announcing that deep cuts would take place once the next three-year spending round begins in 2025-26. “It isn’t a solution because it means we would be going into the next general election on a manifesto of austerity, and who is going to vote for that?” the former minister said. “We would block the move, and the markets know we would block it, which means yet more uncertainty and further financial fallout.”