Liz Truss is facing cabinet unrest over her plans for brutal public spending cuts across all departments after the disastrous mini-budget put major pledges at risk, including the pensions triple lock.
The prime minister held a 90-minute cabinet meeting on Tuesday in which she warned ministers that “difficult decisions” lay ahead.
The chancellor, Jeremy Hunt, told them “everything is on the table” as he strives to find tens of billions of pounds in savings after ditching Truss’s economic plan. Health, education and welfare are among those areas expected to be hit.
One Whitehall official said departments were already preparing for cuts “significantly higher” than previously planned, with Hunt’s tax U-turns estimated to be set to raise £32bn, leaving a £38bn hole in the public finances.
Truss remains in a precarious position, having in effect handed power to Hunt, with a YouGov poll showing that half of Conservative members think she should resign. A significant majority would also support a coronation of a new prime minister by Tory MPs.
Senior ministers are expected to capitalise on Truss’s weakness and resist deep cuts, with the defence secretary, Ben Wallace, indicating he would be prepared to quit his job if the prime minister does not honour her campaign pledge to spend 3% of GDP on defence by 2030.
She faces a humiliating prime minister’s questions against Keir Starmer on Wednesday after one of the most dramatic U-turns in modern times; and Downing Street aides are concerned rebel Tory MPs could seize the moment to publicly call for her to go.
Asked whether it was “no longer a question of whether Truss goes, but when she goes”, the former levelling up secretary Michael Gove said: “Absolutely right.”
In a speech, he added: “All of us are going to face a hell of a lot of pain in the next two months.”
Whitehall officials said planned cuts – drawn up before Kwasi Kwarteng was sacked, but now paused, in which departments would make capital savings of 10% to 15% and day-to-day savings of at least 2% – were now likely to be more brutal.
“It’s fair to say that things are looking tougher than they were,” one said. “Every department is going to have to play a role in finding efficiencies. No department will be ringfenced.”
Government sources confirmed the existing three-year spending review would not be rewritten, but said savings would be required within that because of inflation. In the next spending round, from 2024-25, spending is expected to fall dramatically.
Hunt told ministers they would be asked to find ways to save money, with the focus on areas that would not affect public services. He will meet each one this week to thrash out figures which will be submitted to the Office for Budget Responsibility on Friday.
Late on Tuesday the Times reported that Hunt is poised to delay Boris Johnson’s flagship social care reform and has been warned that his spending cuts may have to be tougher even than George Osborne’s era of austerity.
Treasury officials suggested scrapping the reform entirely or kicking it into the long grass, but Hunt is said to believe that a one-year delay is politically feasible.
Almost everything appears to be up for grabs. Truss could abandon the state pension triple lock to help plug the fiscal black hole, leaving more than 12 million people facing a real-terms cut in their incomes in April.
Her spokesperson refused four times to commit to keeping the pensions guarantee, despite it being a key 2019 manifesto commitment that Truss confirmed she would stick to just weeks ago.
Under the guarantee, state pensioners would get a rise of about 10% in April 2023, which would take their weekly payment from £185.15 to just over £200, helping to alleviate some of the other pressures on their budgets during the cost of living crisis.
Nigel Mills, who chairs the all-party group on pensions, said it was “ridiculous” not to keep the triple lock and warned the move could cost the party at the next election. “The idea that people on a fixed income would not get an increase in line with inflation is preposterous,” he told the Daily Mail.
Chloe Smith, the work and pensions secretary, has previously defended the triple lock but a source close to her said she accepted everything was on the table now.
In contrast, Truss backed off a plan to scrap the government’s commitment to raise defence spending to 3% of GDP by 2030 after a defence source insisted Wallace “will hold the prime minister to the pledges made”, and the armed forces minister James Heappey threatened to quit during a live radio interview.
As one of the biggest spending departments, health is also expected to be in the line of fire, despite Covid backlogs, ambulance delays and thousands of NHS staff vacancies.
One Whitehall source said Hunt’s initial approach would be to try to find savings by suppressing spending in line with inflation, and tweaking the tax system.
Cuts to frontline services were far less politically palatable, with one source calling it “incredibly difficult to the point of being toxic, and it’d be weaponised by the Labour party very effectively”.
In departments such as health and education, officials have already said making cuts of more than about 2% would be near impossible.
Other tax measures under consideration include a new windfall tax, which Hunt hinted he favoured during exchanges in the Commons, as well as Treasury-favoured measures, such as targeting specific tax reliefs for landowners.
The new cap on revenues of renewable energy generators is hoped to raise £3bn to £10bn, depending on where the level is set, but a further windfall tax on oil and gas producers is also being explored.
Targeting pension tax relief is favoured by some in the Treasury, which could generate around £10bn a year if the relief was removed on higher rate payers.
Having spoken to the rightwing European Research Group on Tuesday night, Truss will continue to meet disgruntled Tory MPs on Wednesday, touring the Commons tea rooms after PMQs.
Groups of Tory MPs are still plotting her downfall but have so far failed to coalesce around a single unity candidate.
The Trades Union Congress general secretary, Frances O’Grady, said of the prospect that the government could ask departments to find more savings: “They just can’t. People won’t take it any more. Border guards, prison officers, NHS nurses – who are they going to cut? What’s left? I think it’s untenable for them.
“They’re going to have to think again, if they think they can just come back and keep hammering working people, because I’ve never seen such determination. People have had it; they’re almost beyond anger. They’re just saying ‘no’.”
The International Monetary Fund has praised Hunt’s actions in reversing most of the mini-budget’s unfunded tax cuts.
“The UK authorities’ recent policy announcements signal commitment to fiscal discipline and help better align fiscal and monetary policy in the fight against inflation,” a spokesperson said.
