Liz Truss is facing cabinet turmoil over her plans for brutal public spending cuts across all departments after the disastrous mini-budget put major promises, including the triple pension freeze, at risk.
The prime minister held a 90-minute cabinet meeting on Tuesday in which she warned ministers there were “difficult decisions”.
Chancellor Jeremy Hunt told them “everything is on the table” as he scrambles to find tens of billions of pounds in savings after ditching Truss’s economic plan. Health, education and welfare are among the areas expected to be affected.
A Whitehall official said departments were already preparing for “significantly higher” cuts than previously forecast, with Hunt’s tax handouts estimated to raise £32bn, leaving a hole £38 billion in public finances.
Truss remains in a precarious position, having to hand over power to Hunt, with a YouGov poll showing half of Tory members believe he should resign. A significant majority would also support the crowning of a new prime minister by Conservative MPs.
Senior ministers are expected to take advantage of Truss’ weakness and resist deep cuts, with Defense Secretary Ben Wallace indicating he would be prepared to quit his job if the Prime Minister fails to deliver on her campaign promise to spend 3% of GDP in defense by 2030.
He faces humiliating Prime Minister’s Questions against Keir Starmer on Wednesday after one of the most dramatic U-turns in modern times; and Downing Street aides are worried that rebel Tory MPs could seize the moment to publicly call for him to leave.
Asked if it was “no longer a question of if Truss goes, but when he goes”, former level secretary Michael Gove said: “Absolutely right”.
In a speech, he added: “We will all face great pain in the next two months.”
Whitehall officials said the planned cuts – drawn up before Kwasi Kwarteng was sacked but now on hold, in which departments would make capital savings of 10% to 15% and day-to-day savings of at least 2% – they were probably older now. brutal
“It’s fair to say things look tougher than they were,” said one. “Every department will have to play a role in the search for efficiency. No department will be closed.”
Government sources confirmed that the current three-year spending review would not be rewritten, but said savings would be needed due to inflation. In the next round of spending, from 2024 to 2025, spending is expected to drop dramatically.
Hunt said ministers would be asked to find ways to save money, focusing on areas that would not affect public services. He will meet with each this week to clarify the numbers that will be presented to the Office for Budget Responsibility on Friday.
The Times reported on Tuesday afternoon that Hunt is prepared to delay Boris Johnson’s flagship social care reform and warned that his spending cuts may have to be even tougher than the George Osborne’s austerity era.
Treasury officials have suggested scrapping the reform altogether or kicking it into the long grass, but Hunt is said to believe a one-year delay is politically feasible.
It seems almost everything is on the line. Truss could abandon the triple lock on the state pension to help plug the fiscal black hole, leaving more than 12 million people facing a cut in real terms in their incomes in April.
His spokesman refused four times to commit to keeping the pension guarantee, despite it being a key 2019 manifesto pledge which Truss confirmed he would stick to just weeks ago.
With the guarantee, state pensioners would get a 10% rise in April 2023, taking their weekly payment from £185.15 to just over £200, helping to ease some of the other pressures on their budgets during the cost of living crisis. .
Nigel Mills, who chairs the all-party pensions group, said it was “ridiculous” not to keep the triple lock and warned the move could cost the party the next election. “The idea that people on a fixed income wouldn’t get a rise in line with inflation is absurd,” he told the Daily Mail.
Chloe Smith, the work and pensions secretary, has previously defended the triple lock, but a source close to her said she accepted everything was on the table now.
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Instead, Truss withdrew a plan to scrap the government’s pledge to increase defense spending to 3% of GDP by 2030 after a defense source insisted Wallace would “keep the Prime Minister on the promises made”, and the Armed Forces Minister James Heappey threatened. quit smoking during a live radio interview.
As one of the biggest spending departments, health is also expected to be in the firing line, despite Covid delays, ambulance delays and thousands of NHS staff vacancies.
A Whitehall source said Hunt’s initial focus would be to try to find savings by cutting spending in line with inflation and adjusting the tax system.
Cuts to frontline services were much less politically acceptable, with one source calling it “incredibly difficult to the point of being toxic, and the Labor party would weaponize it very effectively”.
In departments like Health and Education, officials have already said cuts of more than 2% would be nearly impossible.
Other tax measures being considered include a new windfall tax, which Hunt hinted he favored during exchanges in the Commons, as well as measures favored by the Treasury, such as targeted tax relief for landowners.
The new revenue cap for renewable energy generators is expected to rise from £3bn to £10bn, depending on where the level is set, but an additional tax on producers is also being explored of oil and gas.
Some in the Treasury favor the targeting of pension tax relief, which could generate around £10bn a year if relief for higher rate payers was removed.
Having spoken to the right-wing European Research Group on Tuesday night, Truss will continue to meet disgruntled Tory MPs on Wednesday, touring the Commons tea rooms after PMQs.
Groups of conservative MPs are still plotting his downfall, but have so far failed to coalesce around a single unity candidate.
Trades Union Congress general secretary Frances O’Grady said of the possibility the government could ask departments to find more savings: “They just can’t. People won’t take it anymore. Border guards, prison officers, nurses of the NHS – who are they going to cut? What’s left? I think it’s unsustainable for them.
“They’re going to have to think again, if they think they can go back and keep beating working people, because I’ve never seen such determination. People have had it; they are almost beyond anger. They’re just saying ‘no’.”
The International Monetary Fund has praised Hunt’s actions for reversing most of the unfunded tax cuts in the mini-budget.
“Recent policy announcements by the UK authorities signal a commitment to fiscal discipline and help better align fiscal and monetary policy in the fight against inflation,” a spokesman said.