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The Liz Truss Era Begins With a Bungled Tax Plan That May Cost UK Conservatives

Liz Truss presented herself as a straight talker with a clear plan; a leader who would happily make unpopular decisions—and stick by them—to grow Britain’s economy. A month into her premiership, Truss has badly stumbled on the very selling points that took her into Downing Street. An unpopular package of tax cuts has turned public opinion, perhaps leaving lasting electoral damage. And a subsequent decision to reverse the most unpopular of the proposals—tax cuts for the highest earners—has mired her economic plan in chaos.

The drama started when the Truss administration announced a £45 billion package of tax cuts, which would be funded by borrowing. The biggest tax giveaway since 1972, the plans (which proposed giving the highest earners a tax cut) were not accompanied by analysis from the Office for Budget Responsibility, which was one of the factors that led to a swift and bruising reaction. The pound slumped; interest rates rose; the mortgage market descended into chaos; the Bank of England was forced into a £65 billion intervention to stabilize wobbling pensions.

Amid mounting pressure, Truss and her chancellor, Kwasi Kwarteng, retained their faith in “Trussonomics.” But, on Sunday, as the Conservative Party conference kicked off, some prominent Conservative MPs publicly spoke out against the cuts—specifically the notion of cutting taxes for the rich during a cost of living crisis. “There are two major things that are problematic with the fiscal event,” former Conservative cabinet minister Michael Gove told the BBC. “The first is the sheer risk of using borrowed money to fund tax cuts. That is not Conservative. And the second thing is the decision to cut the 45 pence rate…Ultimately, at a time when people are suffering…when you have additional billions of pounds in play, to have a principal decision, the headline tax move, cutting tax for the wealthiest, that is a display of the wrong values..”

The party conference should have been an opportunity for Kwarteng and Truss to bask in their newfound leadership, and shore up enthusiasm and loyalty. However, on Sunday evening, according to The Telegraph, they met for crisis talks in Truss’s hotel suite. Persuaded they didn’t have the numbers to pass the tax cut through parliament, they agreed it needed to be dropped. Early the next morning, Kwarteng released a statement. “It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the changes facing our country,” it read. “We get it, and we have listened.”

The Truss government’s mini budget is not surprising: The prime minister and chancellor have long shared similar economic views. In 2011, shortly after Truss entered parliament, she founded the Free Enterprise Group. The following year, she and Kwarteng were coauthors on a book titled Britannia Unchained, which described British people as “among the worst idlers in the world” and advocated for lower taxes and deregulation. A decade later, this view threaded Truss’s leadership bid. Her opponent, Rishi Sunak (who was chancellor during the pandemic and is largely seen as partly responsible for ousting Boris Johnson), focused on tackling inflation and getting a grip on public finances—even if this required waiting to lower taxes. Truss, however, vowed to cut taxes immediately, and was voted in as party leader (and therefore prime minister) by the some 150,000 Conservative Party members who have now selected two consecutive inhabitants of Downing Street.

A month in, Truss economic vision hasn’t just caused economic upset: It’s established a political problem, right at the infancy of her leadership. During the Brexit and Boris Johnson years, the Conservative’s enjoyed a surge of support from working-class, traditionally Labour-backing voters: tax cuts for the rich during a cost-of-living crisis is likely to weaken support from this base, known as the Red Wall. According to ITV’s political editor Robert Peston, opposition to the cuts spread further. “Even super wealthy Tories here told me they…didn’t support it. ‘I don’t want it’ one significant donor told me yesterday. This is hugely embarrassing for a brand new chancellor, and also for the PM, because it shows quite how much they misread the mood of their party and the public,” he wrote on Twitter. The tax cut for the highest earners would have cost roughly £2 billion a year—just a slice of the overall tax-cutting plan. Better judgment might have foreseen the inevitable headlines and outrage—and assessed that such a policy, even if they really believed in it, simply wasn’t worth pursuing.

Of course, this all presents a huge opportunity for Labour. When Keir Starmer replaced Jeremy Corbyn as leader, some hoped the ex-barrister would act as a robust foil to Johnson: that he would hold the blustering former leader to account with his eye for precision and detail. However, as Johnson commanded all the oxygen and energy, Starmer struggled to cut through and was cast as somewhat uncharismatic, unable to play the series of Conservative dramas to his meaningful advantage. Truss, who is a wooden communicator, is an easier opponent. Consequently, Starmer appears invigorated and having outlined a raft of fresh ideas (like a state-owned energy company), has enjoyed a surge in popularity. A YouGov poll last week positioned Labour with a 33-point lead (reportedly the largest gap since the 1990s). If there had been a general election last week, Labour would probably have won.

But the next election isn’t for a couple of years. Having just ousted a leader, the Tories likely won’t have much appetite to topple another any time soon. So Truss (probably) has time. If her economic plan works out, she could feasibly persuade voters to back her if they have more money in their pockets. But, in the short term, her government has a lot of work to do to minimize lasting damage from the mini budget, especially given they don’t have the mandate of a general election. They need to properly communicate the next steps of their growth plan (which, in a bid to regain confidence, will now be published earlier than the previously stated date of November 23). They need to regain authority, overcome their chaotic first impressions, and make people (and some ministers within their own party) believe that they have clarity, credibility—and (given the challenges faced by households across the country) a conscience. The U-turn on tax cuts has bought them space but—if Starmer manages to seize the moment, and maintain momentum—will it be enough?

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