Liz Truss takes on Tory rebels in battle to rein in benefits

  • In Business
  • 2022-10-03 20:30:00Z
  • By The Telegraph
Liz Truss faces a new fight with the Tory party over not increasing Universal Credit in line with inflation - Ian Forsyth/Getty Images
Liz Truss faces a new fight with the Tory party over not increasing Universal Credit in line with inflation - Ian Forsyth/Getty Images  

Liz Truss is facing a new battle with Tory MPs over reducing benefits in real terms, after being forced to abandon the abolition of the 45p top rate of tax.

Downing Street is considering not increasing Universal Credit in line with inflation, but instead using a lower metric - such as the increase in average earnings - to encourage those on benefits into work.

Tory rebels who forced the Prime Minister into her top tax rate about-turn, including Michael Gove, were already breaking ranks on Monday and warning against the change.

The Telegraph can reveal there is also unease at the top of Government, with some Cabinet ministers understood to believe that refusing to increase benefits by inflation is a "non-starter".

But No 10, considering the options, is preparing to question whether it is fair for people on benefits to get inflation-linked rises while scores of workers get real-terms pay cuts.

Unemployment levels in Britain are at a record low, making it harder for employers to fill positions and leading to calls for more to be done to incentivise people to take jobs.

The benefits battle looks set to be the new front in Tory infighting, with Ms Truss's premiership not yet a month old.

Writing in The Telegraph, the Prime Minister has made her first public comments on the 45p reversal - saying the policy had become an "unnecessary distraction".

She also hinted at humility over the backlash, saying: "I want to bring the public with me. I want to win hearts and minds because I really believe my plan is the right one for the country."

However, she restated her determination to pursue the agenda she set out over the summer - a sign that she is willing to fight for traditional Tory policies such as incentivising more people into work.

Ms Truss said: "In order to get Britain moving, we need to have the courage of our convictions. As Conservatives, we have fallen out of the habit of making Conservative arguments.

"I believe in the values of our party - low taxes, enterprise and aspiration. But we need to start making those arguments again from first principles and bring the British people with us.

"We need to move away from the politics of distribution and work together to build a high-growth, low-tax economy."

Ms Truss and Kwasi Kwarteng, the Chancellor, were forced into a U-turn over the top rate of tax during the early hours of Monday - prompting a short-lived rally in the value of the pound.

In his speech to the Conservative Party conference, Mr Kwarteng acknowledged it had been a "tough" day but added: "We need to move forward, no more distractions, we have a plan and we need to get on and deliver it."

On Monday night, the Treasury said Mr Kwarteng was considering publishing his debt-reduction proposals by the end of this month.

The medium-term fiscal plan was due to be unveiled on Nov 23, but a Treasury spokesman said work had been sped up and it was set to be published earlier.

In his speech to the Tory conference, the Chancellor said it would be published "shortly".

Some Tories reacted with alarm to the tax U-turn. Daniel Kawczynski said he was "disappointed" by it, telling the BBC that scrapping the 45p rate would have attracted wealth-creating entrepreneurs to the UK.

However, rebels hailed their victory and singled out benefits as their next target.

Mr Gove - who was described by Jacob Rees-Mogg, the Business Secretary, as the "Tory party's version of Peter Mandelson" - told Times Radio that while he would probably now vote for Ms Truss's mini-Budget, he would oppose any move to stop linking benefits to inflation.

"I would need a lot of persuading to move away from that," he said. "But I wouldn't want to prejudge an argument that was put in front of me before the argument was made.

"Because in crises, you sometimes have to do things and embrace policies that would in other circumstances be deeply unattractive. But my basic position is, yes, Boris was right."

Mel Stride, the Tory Treasury committee chairman, told BBC Radio 4's World at One that more mini-Budget U-turns may be needed.

"It may be there will be even yet further requirements to unwind some of those positions," he said.

Esther McVey, the former work and pensions secretary, told a fringe event: "I have to say that it would be a huge mistake not to give a cost of living increase in benefits.

"It cannot be that the books are balanced on the back of benefits. That is not right at all."

The concern is shared among some around Ms Truss's top table. One senior minister said the Cabinet would "blow a raspberry" if she tried to block a benefits rise with inflation.

Another said it was politically untenable, given the cost of living crisis.

Current government policy, as set by Rishi Sunak when he was chancellor, is to increase benefits in line with September's inflation rate. Some 5.7 million people were on Universal Credit this summer in England, Scotland and Wales.

But Treasury ministers have refused to publicly confirm that the Truss administration will adopt the same approach, leaving open the possibility that the rise will not match inflation next year.

With no final decisions taken, Downing Street is understood to be considering a number of different options - including linking benefits to the increase in average earnings, 5.5 per cent.

Inflation is almost 10 per cent and could rise higher, depending on the impact of the energy bill freeze.

The Institute for Fiscal Studies said it would cost £7 billion more next year to link Universal Credit to inflation, rather than to average earnings.

A decision is needed by November and will come into effect from next April.

There is hope among government figures looking at options that the policy of reducing the benefits bill could chime with Tory MPs in Red Wall traditional Labour heartlands more than the top rate abolition.

On Monday, Mr Rees-Mogg told The Telegraph that the outcry over the 45p U-turn was "sound and fury that signified nothing".

He told Chopper's Politics podcast: "It was a political reality. Sometimes things you want to do don't receive the approbation of the nation that you would hope for and there's no point in sticking with them stubbornly if there simply isn't the desire and the appetite to do them.

"We live in a democracy and politicians have to be responsive to the democratic will. I'm always in favour of tax cuts, always and everywhere.

"This is politics. Tax decisions are often reversed. Governments come up with ideas that, when the reality hits, it turns out that the nation doesn't want. So you can take the pasty tax, which was reversed because it simply wasn't going to work and then we went on to win the next general election."

Kemi Badenoch has also urged Tory MPs not to rush to the "first TV studio to let everybody know how angry you are" if they have a problem with policy.

Speaking during a question and answer session on the main stage of the Conservative Party conference, the International Trade Secretary said: "As a party, we need to get behind the Prime Minister … We need unity."

However, Ben Houchen, the Tory mayor of the Tees Valley, called for another controversial aspect of the mini-Budget - scrapping the cap on bankers' bonuses - to be reversed.

He told a fringe event: "It's just unnecessary, it doesn't raise much money, it doesn't save much money.

"The economic argument is understandably a sound one but it's the wrong time, in the wrong position given where most of the country currently sits."

Elsewhere in her article for The Telegraph, Ms Truss attempted to wave away suggestions there was a blame game over the 45p reversal by saying Mr Kwarteng was "my friend".

David Gauke, the former Tory Cabinet minister, suggested Mr Kwarteng should resign if he could not regain the confidence of the financial markets.

Speaking at a fringe panel by the European Movement, Mr Gauke said: "We have to have a Chancellor of the Exchequer that is seen as being credible with the markets, and the task for Kwasi Kwarteng this afternoon is to demonstrate that he is credible with the market.

"So I think he's made the right decision today, uncomfortable though it is, but I suspect there's still more that needs to be done.

"He has got to fight pretty hard to be credible with the markets, and whether he can do it or not, I don't know."

Lord Heseltine, the former deputy prime minister, would not be drawn on whether Mr Kwarteng should resign. However, he said things were "looking bleak" and called for an "impressive feat of political leadership" to rescue the Tories' electoral fortunes.

One backbench MP said Mr Kwarteng was a "f-ing imbecile" and called for him to quit, saying the mood of the party was "glum".

Other Conservative MPs suggested that Wendy Morton, the newly-appointed Chief Whip, should shoulder blame for open revolt on the Tory benches over the 45p rate.

One Conservative MP told the Telegraph Ms Truss had "three or four months" to improve the Tories' polling numbers or risk a leadership challenge.

They said MPs would not continue to accept low ratings as a general election drew closer and would "move against her".

Nick Timothy, Theresa May's former joint chief of staff, said "MPs are openly talking" about a coup against Ms Truss, adding: "Let's not beat around the bush - the libertarian part of the party has taken control of the leadership".


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