Troubled Prime Minister tries to unite the Tories behind him

The trigger for the political turbulence was the so-called “mini-budget”, with which Truss’ Chancellor of the Exchequer, Kwasi Kwarteng, first shocked the financial markets and then his own party friends. In particular, the proposed £45bn tax cuts on credit have sent the pound plummeted, driving interest rates higher and forcing the Bank of England to hit the markets with massive 65% bond purchases billion pounds to calm down. Even Truss was unable to win back the markets’ lost confidence with her speech: the pound lost ground again and interest rates on British government bonds rose again.

Ministers argue publicly

The originally planned reduction in the top tax rate from 45 to 40 percent, which Truss and Kwarteng had to withdraw on Monday after a rebellion in the conservative parliamentary group, was particularly politically controversial. No sooner had Truss put out the fire with a U-turn that was humiliating for her than a new argument flared up at the party conference over the question of whether state social benefits for the poor should rise at the pace of wages of a good five percent or the double-digit inflation rate.

Without inflation compensation, the British, who are suffering from the sharp rise in energy costs, would have to accept cuts in their social security benefits in real terms.

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A public row between ministers ensued, adding to the impression that the U-turn in tax policy had severely damaged Truss’s authority and that she had lost control of her cabinet.

Home Secretary Suella Braverman has accused Truss’s critics in her party of plotting a “coup” against the PM. Former culture minister Nadine Dorries called for new elections. Participants at the party congress spoke of an inner-party “civil war”. Others compared the doom and gloom at the champagne receptions to the sinking of the Titanic.

Former Transport Secretary Grant Shapps, who was fired by Truss, said Truss had just 10 days to get her government back on track. He did not want to rule out a vote of no confidence by his own parliamentary group against the head of government. It would be the Tories’ third attempt to overthrow a Prime Minister from their own ranks in three years. Many Tory MPs fear for their political existence, as the opposition Labor Party leads the Conservatives by up to 30 percentage points according to the latest polls.

The political fate of Truss will probably be decided by the question of how she intends to finance the promised tax cuts in the medium term. The prime minister promised that she wanted to reduce the share of government debt in gross domestic product (GDP) again. The debt ratio is moving towards 100 percent.

Financing plan should be available on November 23rd

Exactly how this is to be done, however, is unclear. Finance Minister Kwarteng wants to present a financing plan by November 23 at the latest, which can then be recalculated and checked by the non-partisan Office for Budget Responsibility (OBR).

So far, Truss has been counting on her supply-side reform proposals to bring the British economy back on a growth path of 2.5 percent per year, so that the tax breaks will more or less finance themselves. At the same time, however, she does not rule out cuts in government spending. Truss tried to allay fears about a new savings era of “Austerity” with a promise. “We’ve got your back,” she called out to the British.

However, ministers have been instructed to look for so-called “efficiency savings” and welfare recipients, unlike pensioners, must expect their benefits to be reduced in real terms. Truss, on the other hand, wants to spend more money on defense – three percent of GDP by 2030.

The head of government is hoping for a growth spurt from the abolition of rules and bureaucracy from the time of EU membership, which “should be a thing of the past” by the end of the year. Specifically, this involves financial regulations such as the Solvency II directive for capital requirements for insurance companies.

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The politically ailing Truss must assert itself with its plans against internal party critics in the coming weeks and get enough MPs behind them to get their plans through parliament. “Two things are pretty clear – the government wants to cut benefits to plug a big budget gap and it can’t get votes on it,” tweeted Torsten Bell, director of the think tank Resolution Foundation.

Financial plan decides the fate of the new government

The danger for Truss is that after the tax dispute and the arguments about social cuts, fracking and other infrastructure projects such as new wind farms, which are controversial among the Conservatives, will also fail due to the resistance of rebellious Tories. Truss’ start to more growth would then get stuck in the quagmire of conservative trench warfare.

It is doubtful whether the prime minister can get the party and the kingdom behind her with her narrative of “necessary disruption”. Many Britons have seen more than enough disruption to their daily lives after months of strikes, severe market turmoil and political chaos. Many party delegates would probably have wished for fewer disruptions: most trains from Birmingham back to London were canceled due to a train driver strike against real wage losses.

More: Liz Truss is under pressure after tax policy U-turn