James Forsyth James Forsyth

Why Liz Truss can’t back down

Is there a way for the government to get out of the mess that it is in? This is the question obsessing ministers and Tory MPs. If the government doesn’t set out how it intends to square the circle, it’ll be risking more market mayhem. But as I say in the Times today, it is very hard to see a way out of this that is both politically palatable and economically possible.

Nervous Tory MPs are being told by one of Truss’s cabinet allies ‘the solution is to be very tough on public spending’

A rapidly growing number of Tory MPs think the government should abandon or delay the abolition of the 45p tax rate. They believe that this would show the market that they were now behaving more responsibly. But if Truss and Kwarteng did row back on tax cuts, they would be in office but not in power. The Truss revolution would be over just weeks after it had started. It is almost impossible to imagine her going down this route, given her belief in what she is doing — or sacking the Chancellor, given the Budget was such a co-production. Tax cuts are their shared faith.

If her government won’t compromise on its tax cuts, what will it do? At the moment, the aim is twofold. First, emphasising supply side reform — though with her political capital diminished, it will be harder for Truss to get controversial measures on things like planning, immigration and workers’ rights through the Commons, or even the cabinet. Second is taking a hawkish line on Whitehall budgets. Nervous Tory MPs are being told by one of Truss’s cabinet allies ‘the solution is to be very tough on public spending’.

But how politically possible is spending restraint on the scale that is needed now that government borrowing costs have spiked? Is it, for instance, really credible to just let inflation eat into the NHS budget? And how possible is it to cut welfare in real terms, when you have just given the richest 1 per cent a tax cut?

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