Kwasi Kwarteng’s de facto first budget has prompted a serious split among Conservatives MPs, between rightwingers in favour of a radical agenda and those alarmed that the chancellor has moved too far, too fast.
Allies of Liz Truss, the UK prime minister for less than two weeks, say the biggest round of tax cuts since 1972 reflect “a desire to enact radical reform during the Tory party’s final two years before an election”, an approach they summarise as “go big or go home”.
But Kwarteng’s fiscal statement, a joint creation of Number 10 and Number 11, went further than most Tory MPs were expecting – particularly the decision to abolish the top 45p tax band and bring forward a 1p cut in the rate of income tax to 2023. While the move has won support among backbenchers, unease is also rife.
Mark Spencer, the farming minister, who supported Truss’s leadership rival Rishi Sunak, praised the agenda as “ambitious” and said it would “stimulate growth within the economy that benefits us all”. Another moderate former cabinet minister said: “It’s bold and it’s quite good.”
There was also some recognition that electorally there was little choice but to go big. “It was either this or continue with the status quo and almost certain election defeat,” said a government official.
There is also concern over the competence of the new administration. “There’s a lot of support from free marketers but there are doubts that the government has the expertise to see it all through. Some consider Liz’s team to be lightweight and think Number 10 and Number 11 are showing signs of being drunk on power,” said a senior Tory party figure.
Most Tories nevertheless appear to be giving Truss and Kwarteng the benefit of the doubt at least until after the party’s annual conference next week in Birmingham. “A rebellion is unlikely for now: people recognise they need to give her a chance,” one ex-minister said.
Sir Robert Syms, a former supporter of Sunak, said MPs generally felt “at least we are now facing a battle on policies we believe in” rather than a “Labour-light” agenda. “The backbench WhatsApp groups are now saying, ‘let’s calm down and give this a chance’, rather than the other way around”, he said.
Yet the negative market reaction to Friday’s announcements has stoked fears among other MPs that the new government is acting recklessly – both by significantly increasing the UK’s debt but also favouring tax cuts for the richest to try to stimulate growth.
One former minister said the mood among many was “anxious and uncomfortable” and that “if it was this simple, why didn’t someone do it before?”
“We didn’t do it before because we knew there would be a problem.”
He added: “Income tax cuts are all well and good but if you get £150 a month off your income tax but end up paying £250 extra a month on your mortgage, what’s the point?”
Another former minister said: “Truss and Kwarteng are acting like they are still in a student debating society, where you can pursue some kind of extreme philosophy without there being any consequences. But this is the real world and they are wielding power and the consequences of this gamble could be very grave indeed.”
“It feels a bit like they’ve stuck everything on the black at the casino and have totally ignored the possibility that they could lose everything,” another Tory MP said.
Many in the party are watching interest rates, and whether the Bank of England is forced to increase them significantly following the fiscal statement. “If mortgage rates follow the bond market then that’s a big problem which people will notice,” an MP said.
On the surface, Kwarteng’s fiscal shift should present an obvious opening for the Labour Party, which is meeting for its annual conference in Liverpool this week. But the party has already found itself split on whether it would reverse the government’s tax cuts.
Sir Keir Starmer, Labour leader, said on Sunday that his party would reverse the removal of the 45p top rate of tax. He also said that the party would keep the 1p cut in the basic rate of income tax, retracting comments by his deputy Angela Rayner only a day earlier.
Andy Burnham, the Labour mayor of Manchester, told the Financial Times: “We should keep the income tax position as it was, let corporation tax go up and keep the 45p rate as well.”
Others in Labour, however, said there was a risk that reversing the cuts would allow the Tories to paint the party as seeking to raise taxes. “We have a delicate line to walk. We obviously don’t believe in these tax cuts but we have to be careful not to walk into an obvious trap the Tories are setting,” said one.
One senior Labour figure said the opposition would have to be careful in its criticism of the Kwarteng-Truss agenda: “We shouldn’t assume this should be unpopular. There is a danger we look anti-optimistic and too negative.” – Copyright The Financial Times Limited 2022