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Good morning from Birmingham. Chancellor Kwasi Kwarteng has confirmed the government will U-turn on the plan to scrap the 45p top rate of tax in the face of mounting internal pressure. “We get it, and we have listened,” he tweeted this morning.
It is, of course, a major blow to Liz Truss’s authority and political project, only a day after the prime minister insisted the cut would go ahead. Her broader reform agenda, and with it the viability of her premiership, look much rockier now than they did before the “mini” Budget. Some thoughts on that in today’s note.
It’s the power of Gove
Liz Truss’s U-turn over tax is, of course, a humiliating reverse for the prime minister personally.
It highlights that, while the 2019 majority is large compared with the small or non-existent ones the Conservatives have had since 2010, in historical terms it is not particularly large and requires careful management and attention to pass major reforms.
Truss triggered a flurry of speculation that she was lining up Kwasi Kwarteng as a scapegoat when she told the BBC’s Sunday with Laura Kuenssberg that the abolition of the additional rate was the chancellor’s decision. But my read of what she was saying was rather different: that she was dismissing not her chancellor’s judgment, but the idea that she might consult either her cabinet or the parliamentary party as a whole about controversial items in her budget. (For what it’s worth, Downing Street has also sought to insist that Truss was not blaming her chancellor for the row.)
The government’s majority only requires 31 MPs to vote with the opposition for measures to be defeated. The number of former ministers on the backbenches far exceeds that threshold. While some MPs turn into serial rebels almost from the moment they arrive in the House of Commons, former ministers (such as Michael Gove, Grant Shapps and Julian Smith, all vocal critics of Truss’s 45p tax rate cut) are generally more of a headache for party whips. They have nothing to lose from rebelling and little to fear.
It remains to be seen how much of the electoral damage that the Conservatives have suffered over the last 10 days endures. But the political damage in Westminster — the mood music around Truss in particular from much of the press and the irritation of Conservative MPs at the handling of the measures — is going to need a pretty big shift in the opinion polls to reverse.
Laffer? I hardly know ‘er!
The big problem for Liz Truss is that her U-turn reinforces the perception that ultimately her pro-growth agenda is not going to be able to get past her own MPs. To go through with her tax cuts, Truss needs either to be able to deliver reforms that lead to significant amounts of growth, or to implement major cuts to public spending.
On the economic growth side, is a government that couldn’t keep all its MPs on side for this tax cut going to be able to deliver contentious reforms? I doubt it.
And on the fiscal sustainability end, well, here’s a chart which I expect you are going to get bored of me using:
There is an awful lot contained in this chart! But the big thing — to me at least — is that it shows just how much the pace and depth of public spending restraint has slowed since the middle of the last decade. Most of the big cuts to state spending happened under David Cameron and the coalition government: since then, successive Conservative governments have struggled to make further reductions in either day-to-day or capital spending. The backdrop since 2017 has been of rising spending, whether on the current account side or the infrastructure side.
Over the past week, various government ministers have talked about how there is fat left to cut and that reductions in spending are both possible and desirable. But anyone who looks at the actual recent record is going to be dubious about that.
So one reason why it matters that Truss is abandoning her plans to scrap the additional rate of tax is that it is a good indicator of whether she really can succeed where recent Conservatives have failed — in cutting spending or in implementing big pro-growth reforms.
Yes, she will be able to say that she held out under pressure for far longer than Boris Johnson did over Dominic Cummings’ lockdown breach or Theresa May did over her social care policy. But being more resistant under pressure than Johnson and May is some way from being able to convince your own party, or anyone else, that you will hold the line in defending your reforms.
Now try this
Something I try to make sure I do at party conferences is to eat proper meals and to visit nice new restaurants while doing so. But sometimes the grim feeling sinks in that you are eating in restaurants that, while independent, are as similar to one another as any chain. Tim Hayward is on fine form on that subject, explaining why it is that so many fine restaurants start to feel a much of a muchness. It’s all down to the shared creative influences and intermingling among the top chefs.
All artists exist in conversation with other artists, and I believe very strongly that a chef is an artist. For my money, restaurants with a St John connection tend to be worth a visit even though they bear an unmistakable shared imprimatur. I’m very much looking forward to eating a meal at the original St John as soon as I can when I return home to London.
Top stories today
Water mess | Eleven water companies in England and Wales have been told to cut almost £150mn off customers’ bills next year because they missed targets on measures such as water supply interruptions, pollution and internal sewer flooding. Southern Water and Thames Water were singled out by the regulator Ofwat as the poorest performers.
Post-Brexit standards | Farming and environmental groups are demanding guarantees from the UK government that it will maintain a “level playing field” for food and animal welfare standards in future post-Brexit trade deals.
Romeo, oh Romeo | Kwasi Kwarteng, chancellor, is set to appoint an outside candidate to replace Sir Tom Scholar as the Treasury’s chief civil servant, in a move that would mark another symbolic break with Whitehall orthodoxy.
‘These unusual times’ | New North Sea gasfields will be prioritised during a licensing round that the UK regulator is expected to announce later this week, aimed at boosting domestic production in the short term as the government attempts to tackle the energy crisis.
Partner up | Dominic Johnson, a City financier who co-founded Somerset Capital Management with Jacob Rees-Mogg, has landed a senior ministerial job, as announced on the government website. The Times’s Richard Fletcher and Steven Swinford flagged it first.