Liz Truss 'May Cave’ to Rebel MPs’ Demands And U-Turn on Real-Terms Benefits Cuts

After a growing Conservative revolt, the UK government U-turned on 3 October on plans to scrap the 45 percent rate of income tax for higher earners, announced as part of a package of tax cuts by the UK Chancellor Kwasi Kwarteng. At the time, the Chancellor said the proposals had become "a massive distraction on what was a strong package".

Liz Truss may perform another screeching U-turn, similar to her reversal of a plan to scrap the 45 percent top rate of income tax, originally announced in the unfunded tax-slashing mini-budget on 23 September, The Guardian reported.

Tory MPs allegedly warned the Prime Minister that she risked a rebellion over a plan to uprate benefits in line with earnings – about 5.5 percent – rather than inflation, which stood at about 10 percent in September. For example, for claimants of Universal Credit under 25 receiving the standard allowance, a rise in line with wages instead of inflation would see payments drop by £140.04 in real terms next year. At the same time, uprating welfare by earnings would save the Treasury about £5Bln.

Truss has repeatedly said she has “not yet made a decision” on whether to stick to the inflation-linked benefit rise that her predecessor Boris Johnson promised and which is due to come into force in April. According to the PM, pensions would rise in line with inflation, but people on welfare benefits were in a “different situation”, she told broadcaster LBC on 4 October.

However, dozens of Tory backbenchers have allegedly vowed to resist what they warn would deliver a real-terms cut to social security. The issue is said to have caused major fractures within the Conservative party as MPs get ready to return to the Commons on 11 October.

The PM is increasingly under pressure to guarantee that social security will keep pace with the soaring cost of living, with threats of a move to oust Truss ostensibly gaining fresh strength among MPs over the weekend.

Despite no formal vote being required, an amendment could reportedly be tabled to the finance Bill, prompting an estimated 30 rebel MPs to openly declare their stance.

No 10 would be “forced to cave”, a government source was cited as saying.

Senior Tories, including former chancellor George Osborne, are cited as warning that the party risked a crushing defeat at the next election by embarking on a “political experiment”.

“I think a Tory wipe-out is potentially on the cards, but we’ve got two years to run,” Osborne told Channel 4.

Former Culture Secretary Nadine Dorries, who called the cuts "cruel", told the BBC on 9 October that if an election were held tomorrow, the Tories would face a “complete wipe-out".

After the government consigned to the dustbin the abolition of the top rate of tax - one of the most controversial proposals contained in the Growth Plan announced last month by Kwasi Kwarteng - some Tory MPs believe Liz Truss can be forced into another climbdown.

“She gave in on 45p, she’ll have to do so again,” said one MP.

In an indication that the PM was likely to soften her stance, a Downing Street source reportedly said that “nothing is decided,” adding: “[Truss] will listen”.

‘Morally Indefensible’

Reports of brewing opposition to the PM’s plans comes as new analysis by the Legatum Institute, cited by The Guardian, revealed that uprating benefits in line with earnings would result in 450,000 more people in poverty in 2023-24, 350,000 of whom would be in households where someone works, and 250,000 in families that included a disabled person.

The institute estimated that, compared with the period before the COVID-19, over 1.5Mln more people in Britain would find themselves in poverty this winter, despite the government’s energy support packages. Real-terms benefit cuts next April would boost the overall figure to 16 million, nearly a quarter of the UK population.

The option to reduce welfare benefits spending in the wake of the recently unveiled tax-slashing bonanza was condemned by anti-poverty campaigners as "morally indefensible".

As she urged Truss' ministers to uprate benefits in full, Tory peer Lady Stroud, the chief executive of Legatum, said:

“Failing to do so … would consign many on low incomes to a winter of impossible choices between heating their home, putting food on the table or putting fuel in their car to get to work.”

The think-tank's findings were echoed in a separate study by the charity Child Poverty Action Group (CPAG), which found that 200,000 children would be in poverty if benefits were raised in line with wages rather than inflation.

Stephen Crabb, a Conservative MP and former work and pensions secretary, was cited as saying that the Legatum findings were “further evidence that cutting benefits in real terms will inevitably lead to an increase in poverty and hardship, at the worst possible time”.