No 10 dismisses rumours of Liz Truss U-turn on tax cuts
Gilts and pound rallied after speculation cuts to corporation and dividend taxes wouldn’t go ahead
Downing Street has dismissed the idea that Liz Truss could be about to perform a U-turn on more of the mini-budget tax cuts, amid rumours another policy shift could be imminent in an attempt to placate Conservative MPs and financial markets.
Both UK government bonds and the pound rallied strongly, in part due to continued bond-buying by the Bank of England, but also in response to speculation about a reverse on planned cuts to corporation and dividend taxes.
But asked if he could rule out a U-turn, Truss’s official spokesperson said: “Yes – as I said in answer to a number of questions on this yesterday, and the position has not changed from what I set out to you all then.”
He also confirmed that there would be no changes to the timing of when tax cuts announced in last month’s mini-budget might be phased in.
The spokesperson reiterated Truss’s commitment that overall government spending will rise in real terms this financial year, although this is expected to include the £60bn estimated cost of the bailout for energy bills, meaning some departmental budgets could fall.
Economists have warned that markets could react with dismay if the chancellor, Kwasi Kwarteng, announces a broadly unchanged fiscal plan when he sets out the government’s broader economic programme on 31 October.
With spending cuts seen as politically toxic, some senior Tory MPs have been pressuring Truss and Kwarteng to reverse or delay some of the planned tax reductions.
In a round of media interviews on Thursday morning, the foreign secretary, James Cleverly, appealed to colleagues for unity after a bruising day for Truss, when she was repeatedly criticised at the 1922 Committee of Tory backbench MPs.
Robert Halfon, the MP for Harlow, told the committee she had “trashed the last 10 years of workers’ Conservatism”, while others present described the mood as “funereal” and more downbeat than some of the showdowns faced by Boris Johnson or Theresa May.
While some Tories are plotting how to remove Truss – a tricky feat given party rules mean she can not face a no-confidence vote for her first 12 months in office – Cleverly said doing so would only make the situation worse.
“I think that changing the leadership would be a disastrously bad idea, not just politically but also economically,” he told BBC Radio 4’s Today programme.
He said the party should “stay focused on growing the economy” and dismissed the torrent of acid criticism levied by colleagues and reported by journalists.
“Some people like having quotable tweets and some people like delivering good government. I’m in the camp of people that like delivering good government,” Cleverly told Sky News.
The medium-term growth plan was brought forward from 23 November in an attempt to reassure the markets, while Truss is also inviting groups of MPs into Downing Street for “listening exercises” over the coming days.
Labour said Kwarteng, should reverse the mini-budget because “the sums simply don’t add up” and welcomed Truss’s confirmation there would be no public spending cuts.
Lucy Powell, the shadow culture secretary, said energy support should not be funded purely through borrowing but from a fresh windfall tax for energy companies.
“Kwasi Kwarteng and Liz Truss can put their fingers in their ears and say it’s all OK, we’ll carry on as normal, and we’ll all continue to pay for that with increased mortgage rates, with inflation out of control and other prices going up.
“Or they can do the responsible thing and listen – not just to the big economic global institutions like the IMF [International Monetary Fund] – listen to parliament, listen to the public and they can reverse their mini-budget and go back to the drawing board.”