Hunt warns of ‘eye-wateringly difficult’ spending decisions to come as he tears up Liz Truss’s plans
Liz Truss is battling to save her premiership after Chancellor Jeremy Hunt warned that “eye-wateringly difficult” decisions were needed as he tore up her economic strategy.
Mr Hunt scaled back the energy support package and ditched “almost all” the tax cuts announced by his predecessor Kwasi Kwarteng less than a month ago, as he tried to restore economic stability after weeks of turmoil on the financial markets.
Ms Truss became Prime Minister after winning the Tory leadership contest on the back of promises to dramatically cut tax, and the wholesale abandonment of the policies has left her fighting for her job after just six weeks.
She sat next to her new Chancellor in the Commons, staring straight ahead as he ditched huge chunks of her plan.
After around 30 minutes, she walked out without having said a word.
Moments before her appearance in the chamber, the Prime Minister met 1922 Committee chairman Sir Graham Brady, who is likely to have brought up her lack of support among Tory MPs.
Mr Hunt’s measures included:
- Announcing the plan to cap the cost of energy for all households for two years will now end in April, with targeted help beyond that for those most in need.
- Scrapping April’s planned 1p cut to the basic rate of income tax, which will stay at 20p indefinitely, raising an extra £6 billion a year.
- Ditching a 1.25 percentage point cut in dividend tax planned for April, worth around £1 billion a year to the Exchequer.
- Dropping plans to ease IR35 rules for the self-employed, saving around £2 billion.
- Axing a new VAT-free shopping scheme for overseas tourists, which will save around £2 billion.
- Reversing a decision to freeze alcohol duty rates from February, worth around £600 million a year.
The Government had already abandoned plans to scrap the 45p rate of income tax for top earners and had U-turned on a promise not to increase corporation tax.
The changes dramatically cut the cost of Mr Kwarteng’s £45 billion tax giveaway, reducing it by around £32 billion.
Mr Hunt told MPs: “We are a country that funds our promises and pays our debts and when that is questioned – as it has been – this Government will take the difficult decisions necessary to ensure there is trust and confidence in our national finances.
“That means decisions of eye-watering difficulty.”
He said “every one of those decisions, whether reductions in spending or increases in tax”, would be shaped by “compassionate Conservative values”.
Financial markets, which had been spooked by the prospect of unfunded tax cuts on top of emergency interventions in the energy market and the cost of Covid-19 support, appeared reassured by Mr Hunt’s announcements.
The pound and UK Government bonds rallied in response to Mr Hunt’s measures, while economists suggested the Chancellor’s approach may reduce the need for dramatic interest rate rises.
Plans to cut national insurance contributions and a reduction in stamp duty, which are already going through Parliament, will continue.
Senior Conservative MP Mel Stride predicted public spending cuts to health, social care and pensions, saying the Chancellor is “under half way” to plugging the fiscal hole.
“Without leaning into spending in a meaningful way, it’s very difficult to see how he’s going to close that gap down,” he told BBC Radio 4’s PM programme.
Mr Hunt’s statement on Monday morning, fleshed out with more detail in the Commons with Ms Truss watching on, sounded the final death knell for the Prime Minister’s free market experiment – dubbed “Trussonomics” – to kick-start economic growth through a programme of swingeing tax cuts and radical deregulation.
Ms Truss said the Government was taking action to “chart a new course for growth that supports and delivers for people across the United Kingdom”.
But senior Tory backbencher Sir Charles Walker became the fifth Conservative MP to publicly call for her to stand down.
He told Sky News: “I think her position is untenable. She has put colleagues, the country, through a huge amount of unnecessary pain and upset and worry.”
The situation “can only be remedied” with “a new prime minister”, he added.
Under current party rules Ms Truss is protected from a leadership challenge for 12 months, but that could change if enough Tory MPs demand it.
Former chief whip Andrew Mitchell said the Prime Minister had just a fortnight to save her premiership and “if she cannot do the job, she will be replaced”.
At a meeting with the moderate One Nation Conservatives group in Parliament on Monday evening, Ms Truss acknowledged “mistakes have been made”, according to Conservative Party chairman Jake Berry.
“The Prime Minister started by saying that mistakes have been made, she acknowledged them, she is bringing the party together,” he told reporters.
“Colleagues who were there (were) very heavily focused on unity.”
She ducked a parliamentary clash with Labour leader Sir Keir Starmer, instead sending Commons Leader Penny Mordaunt – viewed as a potential successor – in her place.
Sir Keir accused the Prime Minister of “hiding away, dodging questions”, adding: “The lady is not for turning… up.”
Ms Mordaunt assured MPs “the Prime Minister is not under a desk” or hiding to avoid scrutiny, and denied there had been a “coup” to remove her.
The encounter came as Labour opened up a 36-point poll lead, the largest for any party since October 1997, according to a survey of 2,000 eligible voters by Redfield and Wilton Strategies.
Downing Street insisted the Prime Minister remains in charge despite Mr Hunt tearing up her flagship growth plan.
But allies acknowledged it was a crucial 24 to 48 hours for her premiership.
With discontent spreading throughout the party, the difficulty facing MPs seeking change is the lack of a consensus candidate they can rally around to avoid another bitter leadership contest.
Former cabinet minister Nadine Dorries said: “There is no unity candidate. No-one has enough support.”
She said only one MP has a mandate from party members and from the British public: Boris Johnson.
“The choices are simple – back Liz; if not, bring back Boris or face a GE (general election) within weeks,” she tweeted.
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