It’s only a few days since one Treasury source explained to me that the government’s strategy was: “Double down, chill out”. But that approach has not survived impact with political reality any better than the ideological certainties of free-market think tanks have survived contact with the financial markets.
On Monday morning the chancellor announced a humiliating U-turn on plans to abolish the 45 per cent top rate of tax for the wealthiest people in Britain. Less than a day after the prime minister had insisted that the lady was not for turning, she was forced to do just that.
In his hastily rewritten speech to Tory conference at the Birmingham ICC, Kwasi Kwarteng admitted he had had a “tough” day and conceded that his mini-budget had caused “a little turbulence”. Instead of insisting his plan was the right one—as journalists had been briefed that he would—he abandoned the flagship policy, declaring that there would be “no more distractions”. He urged party members, and his cabinet colleagues, to “focus on the job in hand”.
The trouble is that the damage has already been done and the few MPs who have bothered to turn up in Birmingham fear that it’s terminal. Last week Liz Truss and her chancellor sacrificed the Tories’ reputation for economic competence, catapulting the pound into freefall and sending the cost of government borrowing sky high.
This week the prime minister, less than a month into her premiership, has lost her political authority too, back-pedalling to avoid defeat at the hands of her own MPs who had made clear they would not support the scrapping of the top rate. “She looks so weak,” says one. Even before the U-turn, I am told that focus groups, when asked what drink the prime minister would be, replied: “milky tea or alcohol-free beer.”
To make matters worse, Truss has done nothing to counter the retoxification of the Tory brand that has led to a collapse in the party’s position in the polls. The voters now know that her priority was to reduce tax for those at the very top; she still refuses to guarantee that benefits will rise in line with inflation as promised by her predecessor.
The leadership’s values are clear and reinforce all the negative perceptions of the Tories as the “party of the rich”. “It’s as if we’re on the Titanic without any lifeboats,” one senior MP says. “Liz has got to go.” Another Conservative grandee condemns the “utter incompetence” and “ideological intransigence” at the top of the government, describing the last few days as a “car crash”.
Perceptions of the Tory party have shifted, perhaps irreversibly, over the last fortnight. The chancellor’s pledge in his conference speech that the government’s economic approach would be “backed by an iron-clad commitment to fiscal discipline”, and his claim that the Conservatives would always be “serious custodians of the public purse”, rang hollow after 10 days that had seen turmoil caused by his multi-billion-pound unfunded spending spree.
Kwarteng’s pledge to maintain a “strong institutional framework”, with a special shoutout for the Bank of England and the Office for Budget Responsibility, seemed at odds with his refusal to publish independent forecasts alongside his “mini-budget”, contrary to all normal practice. There was muted applause when Kwarteng declared, implausibly, that “this government is always on the side of those who need help the most”. Even loyal Tories know that the chancellor demonstrated precisely the opposite by announcing the end to the cap on bankers’ bonuses at the same time as trying to scrap the top rate of tax.
There is a lot of dark humour in Birmingham. As protesters chanted and waved placards outside the conference centre, one former minister suggested that he might just go and join them.
But it’s not really funny for the Tory party. MPs, most of whom never supported Truss for the leadership, are utterly furious. When they return after the conference season, it is hard to see how the government can now hope to get other controversial proposals through parliament.
Michael Gove, the former levelling-up secretary who has turned himself into the leader of the rebel army, has already laid down the gauntlet on welfare, telling Times Radio that he would “need a lot of persuading to move away” from the pledge to update benefits in line with inflation. Proposals to reform the planning system, encourage fracking, increase immigration—the “supply side” reforms that the government sees as essential to generating growth—will all run into serious trouble.
The questions over the prime minister’s position will also grow. Nadine Dorries, a close ally of Boris Johnson who supported Truss for the leadership, said the prime minister should call an election if she wants to pursue an agenda so radically different from the one put to the country by the Conservatives in their 2019 manifesto. “If Liz wants a whole new mandate she must take to the country,” tweeted Dorries.
In his speech, Kwarteng criticised the attitude of “slow managed decline” that he claimed had taken hold in Britain, as if his own party had not been in power for the last 12 years. He and Truss are trying to present themselves as a new government, setting out to shake things up. Many Conservatives in Birmingham fear that they are being taken back to bad old days when they were seen as the “nasty party” and kept losing elections.
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