The bloody battle for the soul of the Tory party has begun

‘The free marketeers have had their chance, and Truss has blown it,’ one leading figure told me

A split in the Conservative Party is looming after Liz Truss’s disastrous start as prime minister. Not a formal break-up into two parties, but what insiders call an “intellectual divide”, between the “freedom first” libertarians led by Truss and a rival group – let’s call them communitarians – who want more emphasis on community and society, and less on individualism.

Michael Gove put himself at the head of the alternative faction by leading the successful rebellion against the plan to abolish the 45p-in-the-pound top rate of tax. Rishi Sunak will probably be part of this group. For now, he is keeping his head down; the party doesn’t want to hear him say “I told you so” about Truss (as he most definitely did). Kemi Badenoch, viewed by many Tories as the party’s next leader, will probably be with the group – at least in spirit. As a member of Truss’s cabinet, she must toe the government line.

The opening shots in this struggle for control of the party are being fired here at the Tory conference in Birmingham. Speaking at a fringe meeting on “social capitalism”, which emphasises the role of voluntary groups and charities, Gove argued that the party had moved too far towards liberalism and neglected its Conservative roots.

The labels might sound woolly, but they translate into real-world decisions, such as whether state benefits should rise in line with earnings (about 5.5 per cent) rather than inflation (about 10 per cent) next April. Truss declined to rule out such a real-terms cut in her BBC Radio 4 interview today. The more compassionate communitarians oppose the idea and, after winning on top-rate tax, scent another victory. Although Truss appointed a cabinet of loyalists, not all of her top team share her libertarianism. Penny Mordaunt, the Commons leader, said today that benefits should rise in line with inflation.

I’m told the anti-Truss brigade will soon launch a group. Its organisers believe a majority of Tory MPs share its views. It will probably be backed by think tanks such as Onward and thinkers including Rachel Wolf, who co-wrote the party’s 2019 election manifesto. It will draw up a policy agenda in preparation for a future leadership contest, probably after the next general election. It will be seen as a leadership-in-waiting, which can only undermine Truss’s already weakened authority.

It will rival the free-market think tanks that are Truss’s natural habitat; she worked closely with them on becoming an MP in 2010, and they have provided several of her key Downing Street staff. The right-wing think tanks thought all their Christmases had come at once when Truss won the leadership, giving them a once-in-a-generation opportunity to move from the fringes of the party to a position of real influence.

The Institute for Economic Affairs (IEA), the TaxPayers’ Alliance (TPA), and the Adam Smith Institute – as well as the Centre for Policy Studies, which was hugely influential in shaping Margaret Thatcher’s agenda – welcomed the ill-fated mini-Budget, which included several ideas they had proposed for years to no avail.

Remarkably, they are wondering whether Truss has already wrecked their golden opportunity. Mark Littlewood, the IEA’s director general, who was at Oxford University with Truss (when they were both Liberal Democrats), does not believe her project is dead on arrival, but admits it has had an “inauspicious start”.

The rival faction is jubilant. “The free marketeers have had their chance, and Truss has blown it,” one leading figure told me. The prime minister should have learnt a lesson from her leadership campaign, when she had to drop a controversial plan for regional levels of public sector pay – a “cut and paste job” from a TPA report.

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If Truss cannot turn things round, expect cries of “betrayal” from the free market brigade. It will doubtless argue that she failed because she did not stick to the true path; that she was wrong, for example, to back down on top-rate tax. It’s the same argument hardline Brexiteers use to explain why leaving the EU has not brought the benefits they promised. They never admit the policy is wrong; it’s just that it wasn’t implemented fully.

Indeed, some Tories see imaginary Remainer plots round every corner. Jake Berry, the party chair, said: “We will ... get our economy growing, through tax cuts and reform. While the commentariat will decry them, the same people bashed Brexit.”

This mentality led Truss to turn her fire on the Treasury, the Bank of England and the Office for Budget Responsibility, in a move that backfired spectacularly by contributing to the mayhem in the financial markets. If she and Kwasi Kwarteng had treated these institutions with a bit more respect from the outset, the new government might not have spooked the markets as much as it did. Instead, they pressed on at breakneck speed with the experiment the free-market think tanks have long advocated.

The libertarians may have seized control of the party, but a counter-coup is coming. The battle for the soul of the Tory party has begun. It will be bloody.