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3 October 2022

Will Liz Truss’s U-turn on the 45p tax rate be enough to save her premiership?

At the Tory conference there are signs of discontent almost everywhere.

By Rachel Wearmouth

Liz Truss and Kwasi Kwarteng are still trying to extricate themselves from the fallout of last month’s disastrous mini-Budget. Senior Conservatives, including the well-connected Michael Gove and Grant Shapps, were among those who ordered the government to reverse plans to abolish the 45p tax rate on earnings over £150,000.

And in a blow to their authority, Truss and Kwarteng have now U-turned on the policy. In a tweet this morning, the Chancellor declared: “We get it, and we have listened”. He added that the move had become “a distraction from our overriding mission to tackle the challenges facing our country”.

Rather than cowing MPs, threatening opponents with the loss of the Tory whip had the opposite effect. It galvanised them. But will the U-turn save Truss’s premiership, which appears under threat after just a month in the job?

Kwarteng’s mini-Budget sent shockwaves through the markets, tanked the pound and emboldened the enemies Truss collected during this summer’s Conservative leadership race. Truss, who used an interview with the BBC’s Laura Kuenssberg to insist the tax cut was “a decision the Chancellor made”, is said to have held a number of meetings with senior Conservatives during the last few days to try to avoid a mutiny in parliament.

Rumours are swirling that MPs – most of whom did not back Truss’s leadership – are beginning to coalesce around Gove and Shapps, who are seen as reliable.

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Gove, an astute operator, has made a number of interventions since arriving in Birmingham. He diverted from Truss not only on the 45p tax rate but on grammar schools, telling a fringe event yesterday that scrapping Tony Blair’s ban on new selective schools represented “looking backwards into an educational situation where we’re dividing children between those destined for success, and those who were overlooked”.

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Shapps, meanwhile, sought maximum attention by calling for the abolition of the 45p rate in an interview with the Times last night.

[See also: Liz Truss’s tax U-turn is even worse for her than it looks]

Damian Green, the chairman of the one-nation faction of Tory MPs, left those gathered at a reception in no doubt of his position, but expressed himself diplomatically. He said this year’s conference was “more difficult than many”.

“There are many conversations, in all seriousness, that need to be had about the direction of government as we move between now and the next general election,” he said.

Here at the conference, there are signs of discontent almost everywhere. Yesterday there was an atmosphere of growing unease: activists were raging at the government’s “incompetence” in corridors and receptions.

Most MPs appear to have stayed away from Birmingham altogether, with just a handful attending a Bloomberg reception addressed by the new Tory chairman, Jake Berry. Midway through a “win list” of Truss’s premiership so far – “Did she cut taxes? Yes!” – one activist yelled: “Will she cut council budgets? We don’t know yet”.

At a Tories In Comms fringe, the Leader of the House of Commons, Penny Mordaunt, who finished third in the leadership contest, joked to the spads and communications professionals: “What have we learned today? That our policy is great but our comms is shit.”

Truss’s allies have, incredibly, stuck to the line that the problem with the Budget was not £45bn of unfunded tax cuts but that it was communicated badly. 

Thérèse Coffey, the Deputy Prime Minister and Health Secretary, was ashen-faced as she set out her ambitions for the NHS at a health fringe event, barely mentioning her close friend’s new leadership.

How does Truss survive the hammer-blow of Kwarteng’s disastrous budget? The polls, which give Labour an extraordinary lead of up to 33 points, suggest that she cannot. And the fractious mood in Birmingham suggests grassroots activists know as much. All eyes will now be on Kwarteng’s speech this afternoon, and Truss’s on Wednesday. If neither manages to satisfy the markets and MPs that they have a plan to transform their fortunes, their end may only be a matter of time.

[See also: History shows why the Tories have become addicted to regicide]