The annual Conservative party conference, which this year took place in Birmingham, ended on Wednesday with a marquee speech by Prime Minister Liz Truss. In her speech, Truss highlighted her opposition to what she calls ‘the anti-growth coalition’, committing to deregulation for businesses and slashing taxes, which she believes will revive Britain’s depressing economic outlook.
The conference has been marked by conflict within the Conservative Party, with disputes over welfare and tax cuts for the wealthiest. Conservative MPs, anxious at the prospect of a Labour government if the unpopularity of their party lasts until the next general election, forced U-turns on controversial policies.
Monday saw Chancellor Kwasi Kwarteng scale back from his controversial mini-budget of the 23rd of September, which saw the value of the Pound plummet against the US Dollar in a show of no confidence in the Chancellor’s tax plans. This was not the only consequence. The Bank of England was forced to intervene to save pension funds and avert a ‘2008 style’ economic crisis. Another fallout was chaos in the mortgage market. Lenders have withdrawn mortgage products and the price of mortgages are set to increase as banks increase mortgage rates.
Amongst other things, Kwarteng had planned to abolish the 45% top rate, which applies to those who have an annual income of over £150,000. Essentially, abolishing this rate would have been a tax cut for the highest earners, as additional income over £150,000 would not be subjected to any extra taxation. These tax cuts would have necessitated £45 billion in borrowing to make up the shortfall in income.
This proved to be a bridge too far for Conservative MPs, never mind the public, and Kwarteng reversed the tax cut to save face and avoid the embarrassment of Conservative MP’s voting it down in Parliament. However, this does not mean that the policy is gone for good. Truss stated in her speech that tax cuts are ‘the right thing to do morally and economically’, hinting at an interest in eventually implementing a top-rate tax cut.
Kwarteng was also set to announce a ‘fiscal plan’ on the 23rd of November. Some Conservative MPs put pressure on the Chancellor to bring the plan forward to this month in an attempt to calm the panicked market. Kwarteng has rebuffed this idea and has stated that he intends to stick to the original date.
Anger was also expressed at Truss’s refusal to rule out benefit cuts. The government has been mooting spending cuts in order to reduce the debt-to-GDP ratio, which has been increased by the policy of capping household energy bills to an average of £2,500 per year (which does not mean no bill will exceed £2,500), which has obviously necessitated increased spending. Delinking benefit increases from inflation and instead linking them to wages is seen by the government as a way to reduce spending on welfare. Of course, this would mean a real-terms welfare cut, as wages have not matched the increase in inflation. Echoes of austerity certainly abound.
Even members of the cabinet were incensed by this. Penny Mordaunt, the Leader of the House of Commons, was defiant in her support for linking benefit payments to inflation. Other senior Conservative politicians, including the architect of the Universal Credit system Ian Duncan Smith, hinted that they could dissent. It appears that, at least for now, Truss and Kwarteng have been forced to abandon plans for welfare spending reduction by their own party.
All of this points to a government which is deeply divided. Home Secretary Suella Braverman criticised members of her own party for undermining government policy, saying she was disappointed in the behaviour of MP’s who had spoken out against the top-rate tax cut. Others have criticised the perceived economic irresponsibility, with former Home Secretary Priti Patel saying that the government is ‘spending today with no thought for tomorrow’.
Suffice to say, with the disastrous reaction to Kwarteng’s mini-budge, a party in conflict over flagship policies proudly announced by the government and a general election (at maximum) two years away, Liz Truss faces the challenges of asserting her authority over her cabinet and MPs, reversing Britain’s ailing economic outlook and creating growth whilst also delivering on her promises to cut taxes and decreased regulation and seeing off the electoral obstacle of a Labour party which is resurging in popularity.
With all this being said, Truss appears to be defiantly perusing a ‘small state’ political ideology. Whether the public, and even her own party, share her enthusiasm remains to be seen.