Liz Truss is facing calls from within her Conservative Party to backtrack on key pieces of her economic plan, even as her UK government tried to downplay its part in the recent turmoil in financial markets.
In her weekly session of Prime Minister’s Questions, Truss sought to allay concerns that she would cut public spending to pay for a massive package of tax cuts, which forms the centerpiece of her bid to overhaul the economy.
Just over a month into her premiership, Truss is already in a political bind – caught between the market fallout over unfunded tax cuts, and opposition among some Conservative MPs to any cuts to public spending that would further damage the party’s standing in the polls. According to two people familiar with the matter, Truss told them her government is in listening mode and will consider feedback ahead of October 31. One member of Truss’s Cabinet said privately that the government is aware of the unease among MPs – though no decision has been made on any change in course.
The pound slumped to a record low against the dollar in the days after Kwarteng announced on September 23 the largest package of unfunded tax cuts in half a century. The Bank of England was then forced to intervene in the bonds market to stave off a collapse in part of the pensions industry. It’s the type of attack used by Truss’s campaign during the leadership campaign, but which Tory MPs worry is ringing increasingly hollow after the Bank of England stepped in to calm markets after Kwarteng’s statement.Later, Rees-Mogg told ITV’s “Peston” programme that forecasts from the UK’s budget watchdog aren’t sacrosanct, and the International Monetary Fund’s criticism that UK fiscal policy should be tighter is incorrect.
One former minister said Truss needs a complete course correction, including scrapping a 1-penny reduction in the basic rate of income tax and proceeding with the previous administration’s plan to raise corporation tax next year – either in full or in part – rather than scrapping it.It is not only Tory MPs predicting that something has to give. A full fiscal reversal is “now our base case”, Mujtaba Rahman, managing director, Europe at Eurasia Group, said in a note published on Wednesday.
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