Truss finally admits defeat over tax break for rich

Prime Minister Liz Truss tried to control her nerves during a fraught Sunday at the Conservative party conference in Birmingham, but around 11 p.m. in her hotel suite she finally conceded defeat.

Truss and her Chancellor Kwasi Kwarteng met at the Hyatt Regency to consider whether an important shelf of his ‘mini-Budget’ could be saved. The verdict, as they sat gloomily in a private room high above the city, was a resounding “No.”

Their swift turnaround in his plan to abolish the top 45p income tax rate — announced just nine days earlier — was the culmination of a series of tense discussions after his tax statement sparked financial market turmoil and widespread anger. among Tory MPs and voters.

Throughout Sunday, the policy seemed increasingly in jeopardy. Michael Gove, the influential former minister, appeared on BBC’s Sunday with Laura Kuenssberg program to argue that it was “a display of the wrong values”.

Truss told colleagues she didn’t want the row over the abolition of the 45p rate – which would benefit people earning more than £150,000 and earning up to £3 billion a year – from “the defining issue of my premiership” and the was right to cut hair lose fast. “It’s not the fight I wanted to have,” she said.

Abolishing the policy was a crushing blow to the authority of both Truss and Kwarteng — joint authors of the September 23 mini-Budget — but they had no choice. “We had to take the plaster off,” said a government insider.

The Prime Minister and Chancellor acknowledged that the policy had been bombarded with the public amid the cost of living crisis: Tory MPs’ inboxes were overflowing with hundreds of angry messages from voters.

Many Conservative MPs had said they would not vote in favor of the plan to scrap the 45p tariff, meaning a defeat for the House of Commons was certain. One said it was crazy to think that a Tory government could impose cuts in public spending – in an effort to show ministers can cut government debt in the medium term – while cutting taxes on the rich at the same time. .

Kwarteng confirmed the U-turn in a tweet on Monday around 7:30 am and said, “We get it. We have listened.” He then had to endure a scorching BBC radio interview to explain the retreat.

The Chancellor’s allies admitted they knew the plan to scrap the 45 pence rate would be controversial but didn’t expect it to overshadow much of the rest of the mini-budget, including £40bn plus other tax cuts financed by loans and supply side. reforms to boost economic growth.

“The big thing. . . was that it was a complete distraction from an important reform package,” said a Tory party insider.

The chancellor insisted he had not offered to resign. “Why would he?” said an ally. Downing Street insiders said Truss had been advised by some officials last week that she should “lose the chancellor”, but she told aides she had “never considered it”.

Some senior Tories speculated that Kwarteng might struggle to survive in the medium term. “Markets will never trust him again. How can he ever convincingly deliver a budget?” asked a member of parliament. Other conservatives suggested Truss could turn to former Chancellor Sajid Javid if Kwarteng was forced to leave.

But firing Kwarteng would remove a lightning rod for criticism and expose Truss more. Moreover, they are old friends and the prime minister and her chancellor had been planning his tax statement together for weeks. “They are still completely in agreement on the policy,” said a Truss ally.

Senior Tory officials confirmed that the idea to scrap the 45p tariff was originally submitted to Truss by Chris Philp, Kwarteng’s deputy at the Treasury, during the Conservative leadership contest in August.

Philp insisted to his friends that he was “not the driving force” and the idea was one of 30 proposals in a policy paper. But no matter who came up with the proposal to abolish the 45p rate, neither Truss nor Kwarteng could escape the blame to go through with it.

Truss has not consulted her cabinet on the plan to scrap the 45p tariff, nor on the decision to make a reversal. She and Kwarteng were the main decision makers.

A minister said she was not formally notified of the decision at 10 a.m. Monday — about two and a half hours after Kwarteng announced it.

Some ministers were optimistic, even pleased with the decision. “It’s the nature of politics, if something doesn’t work out, you can change course,” said a minister.

Another minister added: “Even Margaret Thatcher changed course. We’ve listened to backbenchers so people can empathize with what we’re doing.”

But the decision to scrap the 45p rate was not well received in the “blue room”: a VIP room of the Tory conference where wealthy party donors gather. “The operation is amateurish,” said one of those present.

The political danger exposed by the U-turn was clear: Truss and Kwarteng now look like they could be pushed into the conservative party by their political enemies.

Gove’s intervention — who backed former Chancellor Rishi Sunak in place of Truss to succeed Boris Johnson as prime minister — was seen by Tory MPs as an example of “Michael on maneuvers,” possibly for future party leadership.

The risk for Truss and Kwarteng is that conservatives hoping to destabilize the new government — some with a view to replacing it — could now try to force a reversal in other parts of the prime minister’s economic strategy.

Tory MPs, including Gove, have criticized the decision to remove the cap on banker bonuses as a gift to Labour: it could become the next target for rebel attacks.

But Kwarteng is confident that the rest of his mini-budget, including a £13bn cut in national insurance and the 1p cut in the basic income tax rate, will get support from all parties in parliament.

A finance bill to introduce some of the measures, including the reversal of a planned £17bn corporate tax hike, is not expected until the new year. Kwarteng is convinced that MPs will support the legislation.

It remains to be seen whether the row over cutting the 45p rate will dampen Truss’ ambitious supply-side reforms aimed at boosting growth.

When she became prime minister last month, she vowed to tackle long-standing issues surrounding planning to boost housing and childcare affordability, but her failure with tax reform may make her think.

A Conservative MP who supported Truss said: “If she can’t get a £2bn tax through it, I don’t see how she has any hope of planning reforms or anything else. Liz wanted to be radical, but she failed at the first hurdle.”

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