Liz Truss, prime minister, has admitted that mistakes were made in the controversial “mini” Budget that sparked market turmoil last week, as she braced herself for a fraught Conservative conference in Birmingham.
Truss said she would not retreat on her plan to deliver £45bn of unfunded tax cuts, insisting it would help deliver growth, but admitted: “We should have laid the ground better and I have learned from that.”
The PM repeatedly refused to say whether she would cut public spending to make the sums add up and said she needed to work to win “the hearts and minds” of Tory MPs to convince them her plan was right.
She also admitted that the controversial plan to scrap the 45 per cent top rate of income tax — paid on earnings above £150,000 — was not discussed by the cabinet. “It was a decision the chancellor made,” she told the BBC.
The plan triggered fears of higher inflation, causing the pound to fall to a record low against the dollar and a sell-off in UK government bonds. Lenders pulled thousands of mortgage products and the Bank of England launched a £65bn bond-buying scheme to stabilise markets.
Truss and her chancellor Kwasi Kwarteng have faced strong criticism from Tory MPs over their plan and on Sunday former cabinet minister Michael Gove said he had “profound” concerns about it.
Speaking on the Sunday with Laura Kuenssberg programme, Gove said that borrowing on a large scale to pay for tax cuts was “not Conservative” and declined to say whether he would vote for the package.
Gove, who will appear at a number of events at the Tory conference, said the decision to axe the 45 per cent rate and to remove the bankers’ bonus cap in the middle of a cost of living crisis displayed “the wrong values”.
Gove’s comments spell trouble for the prime minister and reflect what many Tory MPs have been saying in private. Some believe that Kwarteng or Truss — or both — will have to go unless they can quickly get a grip.
Truss arrived in Birmingham with the Conservatives trailing Labour by between 20 and 33 points, according to several polls, and with MPs in a state of high nervousness as mortgage rates soar in the wake of the fiscal statement.
The prime minister was defiant on Sunday, insisting that the tax cuts and a series of supply-side reforms in areas such as planning, City of London regulation and immigration, would boost growth.
She refused to say whether she would have to embark on a new round of austerity, saying only that she wanted to deliver “great public services” and that people were too focused on “inputs not outcomes”.
But many Conservative MPs fear a huge public backlash if benefits are reduced in real terms at a time when the Truss government is cutting taxes for the rich.
Truss said a decision on uprating benefits would be taken by Chloe Smith, work and pensions secretary, in the autumn. But the prime minister confirmed that pensions would rise in line with inflation.
Her admission that the fiscal plans could have been explained better will add to tensions that have emerged in the recent days between the prime minister and Kwarteng.
But she defended the chancellor’s decision to attend a private drinks party with hedge fund managers, first reported in the Sunday Times, on the evening of his fiscal statement on September 23. “The chancellor meets business people all the time,” she said.
Some Conservative MPs have already started speculating on the possibility that Truss could be replaced by her leadership rival Rishi Sunak, who is spending conference week in his North Yorkshire constituency.
Truss’s admission that she needs to win “hearts and minds” in her party is also a nod to the problems she could face when she tries to push legislation through the House of Commons to enact her plans.