Tax U-turn ‘does not draw line’ under Tory backbench anger over Kwarteng budget

Spending on welfare benefits and public services is next battleground, predicts former minister

Kwasi Kwarteng’s U-turn on the 45p tax rate will not “draw a line” under Tory MPs’ rebellion against his mini-Budget package, a Conservative former cabinet minister has said.

Former work and pensions secretary Stephen Crabb said that the next battleground was likely to be over public spending cuts and the uprating of welfare benefits.

Ex-cabinet minister Michael Gove - whose intervention played a big part in forcing the climbdown over taxes on the rich - indicated that he will resist any attempt to reduce the annual rise in working-age benefits from the inflation-matching 10 per cent promised by Boris Johnson.

And another former work and pensions secretary, Esther McVey, told a meeting on the fringe of the Conservative conference in Birmingham that it would be a “huge mistake” not to uprate benefits in line with inflation.

“What we have to do is bring people back to work and that will not be done by slashing the benefits budget,” she said. “We have got to be an enabler.”

Mr Kwarteng today indicated that he will not upgrade budgets for public services to take account of higher-than-expected inflation, leaving a potential black hole estimated at £18bn by the independent Institute for Fiscal Studies economic thinktank.

And Ms Truss has said that the current work and pensions secretary Chloe Smith is reviewing the previous administration’s promise to uprate working-age benefits next April in line with the September inflation rate, amid speculation she will instead link them to wages at about 6 per cent.

Asked if he would vote against the government if benefits don’t rise with inflation, Mr Gove told Times Radio: “I will wait to see what the whole package is... My overall belief is Boris’s argument was right, I would need a lot of persuading to move away from that.”

Mr Gove stressed that he was not committing now to opposing any below-inflation rise in benefits, but said: “I think that we should look at those decisions thinking always how are the most vulnerable in our society going to be affected, how can we protect them?”

Following this morning’s humiliating climbdown, Mr Crabb said that Mr Kwarteng could expect “some pretty gritty conversations” with Tory MPs if he tried to pay for his remaining £43bn of unfunded tax cuts by cutting benefits and services.

And another vocal opponent of the tax cuts for high-earners, Tory backbencher Steve Double, welcomed the U-turn but said it was now crucial that Ms Truss and Mr Kwarteng listen to their own MPs before finalising the spending package due to be unveiled on 23 November.

This chart shows political parties’ changing fortunes in the polls from April (Press Association Images)

“We all appreciate that there are difficult decisions ahead with regard to public spending,” Mr Double told The Independent. “But they have got to engage with backbenchers and listen before coming forward with plans.”

Tory opponent of the 45p tax cut Robert Largan said he was “relieved that the government have belatedly listened”.

Mr Crabb told LBC radio that the 45p tax rate U-turn “probably doesn’t draw a full line under the mini-budget”. “Certainly, when the government starts signalling it wants wide-ranging spending cuts, there are going to be some pretty gritty conversations with backbenchers about where those spending cuts might fall,” said the former cabinet minister.

“Don’t forget, the social security uprating this April just gone was only 3 per cent even though the real inflation rate was 6 per cent.

“The government at the time promised the following April there’d be a correction. It looks like that might be ditched. That would be the wrong choice.

“I’ve always been clear that we need to do a full uprating next April.”

Another critic of the plan to abolish the 45p rate, former Northern Ireland secretary Julian Smith, welcomed Mr Kwarteng’s climbdown.

“I welcome the decision to scrap the cut in the 45p rate,” he tweeted. “Kwasi Kwarteng and Liz Truss have listened. Fair taxation is key as the government gets on with its work.”

The Conservative chair of the Commons Treasury committee, Mel Stride, said Mr Kwarteng needed to “unwind” further elements of his mini-Budget.

There were still “a number of unfunded tax cuts, that’s going to be deeply problematic … it may be that there will be even yet further requirements to unwind some of those positions,” he told BBC Radio 4’s World at One, adding: “The main economic issues here haven’t gone away even if the political ones have been made easier.”

Another Conservative member of the Treasury Committee, Julie Marson, added her voice to Mr Stride’s calls for Mr Kwarteng to bring forward to this month the medium-term fiscal plan, which will be accompanied by a report by the Office for Fiscal Responsbility assessing its impact on the economy.

Welcoming the 45p U-turn as a “positive and necessary” move, Ms Marson added: “Kwasi Kwarteng now needs to bring forward his statement and the OBR forecast to further reassure markets and help ordinary people with rising interest rates. “