Jeremy Hunt has shredded Liz Truss’s economic plans in one of the most astonishing U-turns in modern political history, including slashing the energy price freeze which the prime minister had repeatedly championed.
The new chancellor dismantled almost all of the platform that Truss’s leadership victory had been built on, including the majority of her tax cuts, and hinted a new windfall tax was in his sights – a move the PM had previously said she would not countenance.
Hunt also refused to rule out cuts to totemic Conservative pledges, including defence spending and the pensions triple lock.
Truss declined to appear at the dispatch box in parliament on Monday despite calls from Labour, leading one cabinet minister to clarify she was not “hiding under a desk”. In an interview with the BBC on Monday night, she said she wanted to “accept responsibility and say sorry for the mistakes that have been made”.
“I wanted to act to help people with their energy bills and to deal with the issue of high taxes, but we went too far and too fast,” she said.
With her premiership in grave doubt, Downing Street sources told the Guardian that Truss met Sir Graham Brady, the powerful chair of the 1922 Committee, where they discussed the scale of MPs’ anger.
A new poll from Redfield & Wilton gave Labour a 36-point lead, the largest for any political party from any polling company since October 1997.
In a statement on Monday morning, Hunt said the 20p basic tax rate would remain indefinitely and reversed a swathe of other tax measures, including changes to dividend taxes, a VAT-free shopping scheme and a freeze on some alcohol duties.
But the biggest shock came when the chancellor said he would no longer guarantee energy prices for the next two winters and that more targeted measures would replace the universal guarantee from next spring after a Treasury review.
It means the average annual energy bill will rise to more than £4,000 from April, according to the sector’s leading forecaster, and analysts said it could lead to a rise of almost five percentage points in the annual inflation rate.
Inflation currently stands at 9.9% and is expected to rise slightly when the figure for September is announced on Tuesday.
The Institute for Fiscal Studies said the £32bn tax increases – the biggest since 1993 – would not be enough on their own to undo the damage caused by the “debacle of the past few weeks”.
Paul Johnson, the thinktank’s director, said the chancellor’s decision to scrap most of the tax cuts announced last month was welcome but would not be enough “to plug the gap in the government’s fiscal plans”.
Hunt will use his next fiscal statement – due on 31 October – to outline how the government intends to reduce public sector debt as a share of national income over time. Estimates of what it would take to achieve this range between £60bn and £72bn.
The only key tax announcements to survive were the cancellation of the national insurance rise and stamp duty changes, both already subject to new legislation.
Flanked by ashen-faced Tory backbenchers, Hunt said there would be tax rises and spending cuts, which he called decisions of “eye-watering difficulty”.
He refused to rule out changes to the pensions triple lock and said a new windfall tax on energy profits was on the table. “I am not against the principle of taxing profits that are genuine windfalls,” he told the Commons.
Few in Westminster believe Truss’s premiership is secure even with the significant reversals.
One member of the 1922 executive said the group could take action this week, either by changing the rules or sending Brady to tell Truss it was over. “When the herd moves, the herd moves,” they said.
Truss began a new round of party diplomacy on Monday night, including a drinks reception for the cabinet and a meeting with the One Nation caucus of MPs on the party’s centrist wing who had mostly backed Rishi Sunak.
Behind closed doors, Truss apologised for the turmoil and MPs said she had asked them to give her until 2024 to deliver on people’s priorities.
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In her BBC interview, Truss said she intended to stay on as prime minister. “I do think it is the mark of an honest politician who does say, ‘Yes, I’ve made a mistake.’ I’ve addressed that mistake. And now we need to deliver for people what we’ve said we’ll deliver.
“I’m sticking around because I was elected to deliver for this country. And that is what I am determined to do. I will lead the Conservatives into the next general election … We simply cannot afford to spend our time talking about the Conservative party, rather than what we need to deliver. That is my message to my colleagues.”
But five MPs have now openly called on the PM to resign, after two more spoke out on Monday – the veteran backbencher Sir Charles Walker and the former parliamentary aide Angela Richardson.
Another MP, who has not publicly called for the prime minister to go, said they believed it was now “majority opinion” in the party that Truss should resign.
With MPs openly calling Hunt the “de facto prime minister”, another former leadership contender – Penny Mordaunt – answered the urgent question in place of Truss.
Mordaunt said the prime minister was not in hiding. Instead, Truss had been “detained on urgent business”, Mordaunt told the Commons, later revealed to be the meeting with Brady.
Mordaunt put clear water between herself and the prime minister, apologising for the market turmoil – something Truss had declined to do.
Number 10 had earlier sent a WhatsApp message to Conservative MPs which made no excuse or apology, but said the government had to “adjust our programme” because of global economic conditions.
In his statement to MPs, Hunt admitted questions had been raised about whether the country could fund spending promises and pay its debts, and laid out plans to scrap tax cuts worth £32bn.
However, the sum is only half of the fiscal black hole – estimated to be about £70bn – caused by last month’s mini-budget, and Hunt alluded to needing to take “difficult decisions” to regain trust “in our national finances”.
“That means decisions of eye-watering difficulty,” he said. “Every single one of those decisions – whether reductions in spending or increases in tax – will be shaped through core, compassionate Conservative values that will prioritise the needs of the most vulnerable.”
Hunt’s decision to bring forward tax increases had an immediate impact on the financial markets.
The pound rose by 2% against the dollar – its biggest one-day increase since March 2020 – to stand at $1.14, while the interest rate on government debt fell sharply. The yield on 30-year gilts fell by 0.4 percentage points to 4.37%, reversing some of the increase since Kwasi Kwarteng announced £45bn of tax cuts in his 23 September mini-budget.
In an effort to further gain the confidence of the City, Hunt said he was setting up a new economic advisory council, with at least four leading economists lined up to join it, including Rupert Harrison, George Osborne’s former chief of staff, and a JP Morgan executive.