Liz Truss’s allies on Thursday attempted to shore up the prime minister in the face of growing criticism from Tory MPs, with foreign secretary James Cleverly saying that ousting her would be “a disastrously bad idea”.
Truss and Kwasi Kwarteng, chancellor, will meet Tory MPs over the coming week to seek their views on how to balance the books, a “listening exercise” seen by some senior Conservatives as a sign of weakness.
One former cabinet minister said: “It is a hung Budget exercise where markets have to wait for 365 MPs to dictate their priorities.”
Tory pressure is mounting on Truss to scrap key elements of the September 23 “mini-Budget”, including axeing a £17bn corporation tax cut, with one MP saying the mood in the party was “horrendous”.
Overall, the mini-Budget included £45bn of unfunded tax cuts, although the government has now U-turned on £2bn plans to abolish the 45p top rate of personal tax.
Truss has been in office for just over a month, but some Tory MPs are privately discussing whether she should be toppled following the chaotic fallout from last month’s fiscal event.
Cleverly told the BBC that Kwarteng did need “to bring certainty to the markets”, but added: “I think changing the leadership would be a disastrously bad idea politically and also economically.
“We are absolutely going to stay focused on growing the economy.”
But on Wednesday, the prime minister was confronted by a number of Conservative MPs angry at her economic policy, with Rob Halfon, a Tory MP for the working-class seat of Harlow, accusing her of “trashing” blue-collar Conservatism.
Truss has promised to consult Tory MPs next week over the shape of a new medium-term fiscal plan, which Kwarteng is scheduled to present on October 31.
The announcement will be watched closely by markets, which have been hugely volatile in recent weeks on the back of concerns about the sustainability of the government’s tax and spending plans.
One senior Tory MP said: “There are massive issues relating to the relationship between the executive and parliament. This reflects a wholesale loss of authority — she is basically asking the parliamentary party for sign off.”
The “round table” meetings with Tory MPs, confirmed by Downing Street, are likely to involve growing calls for Kwarteng and Truss to scrap the £17bn plan to cut corporation tax rates.
So far Truss and Kwarteng have insisted on sticking with their economic plan, but some advisers to the government have warned them that the markets and parliamentary opposition will force them to axe or amend it.
Rishi Sunak, former chancellor, had planned to increase corporation tax from 19 per cent to 25 per cent next April and the anticipated extra revenues are already scored in the government’s books.
If Kwarteng fulfils his promise to reverse that increase, he will have to find £17bn to pay for it. The Institute for Fiscal Studies estimated this week the chancellor is confronting a £60bn fiscal hole.
The corporation tax move is the biggest tax change in Kwarteng’s plan but also totemic; it featured prominently in Truss’s Tory leadership campaign. Rescheduling or scrapping the cut would save billions of pounds.
Asked about the government’s fiscal plans in a Sky News interview Cleverly did not mention the corporation tax cut, insisting instead that the most important parts of the “mini Budget” related to the government’s energy support package and separate cuts to income tax and national insurance.
The foreign secretary said the focus had been on “making sure that taxes for 30mn people were reduced a little bit and those are really strong principles”. He said: “I think we should absolutely stick with those.”
One Conservative MP predicted that colleagues might also express concern in next week consultations not just about the corporate tax cut but other parts of the package as well, favouring instead more public spending on schools or hospitals, rather than years of austerity to pay for tax cuts.
Mohamed El-Erian, president at Queens’ College Cambridge and adviser to Allianz, the insurer, told the BBC: “They now understand that you can’t resolve the issue by cutting spending heavily that simply won’t work.
“There’s starting to be some talk among backbenchers that perhaps we need a reset of the ‘mini’ Budget and particularly the unfunded tax cuts. And ultimately that is a necessary condition to get us out of this mess.”
