Liz Truss is being warned that she risks abandoning a winning coalition of voters in the “red wall” as she pursues “cavalier” tax cuts, amid revelations that her giveaway package disproportionately benefits more traditional Conservative heartlands.
With huge nervousness among MPs over the £45bn tax-cutting package announced on Friday, including abolition of the top rate tax band and the end of the bankers’ bonus cap, several Conservatives said they feared the new prime minister has already shifted away from the levelling up agenda that helped secure red wall seats from Labour in the Midlands and north of England.
Households in London and south-east England will gain three times as much as those in the north from tax cuts next year, according to a Resolution Foundation analysis.
Northern Tory MPs, including those in red wall seats, are planning to meet early this week to discuss their response to Kwasi Kwarteng’s “mini budget”. While there is a determination to give Truss and Kwarteng time to sell their radical plan, concerns are already emerging.
“Abandoning a voter coalition that won us a majority of 80 in pursuit of trying to win all seven libertarian voters in the country is certainly a bold move,” said one despairing Tory MP. Another senior Tory said: “I told Liz before that in areas like this it would be difficult to sell a free market, free enterprise approach when they have had a protective blanket thrown round them during the pandemic and since, with energy bills.”
Lord O’Neill, a former Tory Treasury minister who advocated investment in the north under David Cameron’s government, said he feared the package was “blue wall focused” – a reference to traditional Tory seats now under threat from the Liberal Democrats and Labour.
“Other than the investment zones, there is little in this for the north,” he told the Observer. “It is completely blue wall focused. Have they just decided they’re going to abandon the red wall? I’m sensitive to this because of my background, but many people I know on a personal basis are talking about bankers’ bonuses. It’s almost like they deliberately made a song and dance out of trying to do more for higher earners. It’s very surprising.
“The investment zones might be interesting for the northern powerhouse agenda. But the problem is, it will just get swamped by everything else. It’s one thing to offer incentives to invest. But if it’s at the price of massive, macroeconomic uncertainty, forget it. . I have been using the phrase ‘audacious’, but also ‘cavalier’.”
Meanwhile, middle-income Britain stands to lose most from the overall impact of all tax and benefit policies announced over the parliament. The poorest fifth of households gain £90 on average, with the middle fifth losing £780, and only the top 5% gaining significantly – some £2,520. By 2024, 2.3 million people could be living in absolute poverty, including 700,000 children.
The Resolution Foundation also warned that to meet Kwarteng’s desire to have debt falling in the medium term, it would require spending cuts of £35bn in 2026-27, assuming tax increases have been ruled out. A package that size would be on a par with the austerity cuts announced by George Osborne in 2010.
“Today’s Conservative party is no longer fiscally conservative or courting the red wall, with debt on course to rise in each and every year, and its focus shifting south where the main beneficiaries of these tax cuts live,” said Torsten Bell, the foundation’s chief executive. “While the measures announced won’t prevent more than 2 million people falling below the poverty line, they will mean only the very richest households in Britain seeing their incomes grow.”
Paul Johnson, director of the Institute for Fiscal Studies, believed tax rises would have to be contemplated to deal with debt in the years ahead. “This may be a failure of imagination on my part, but I find it quite hard to see how you do this through spending cuts given the decade that we’ve just had,” he said.“Public services are going to be under a lot of strain anyway. It’s really quite hard to see how you get substantial spending cuts. My guess is that, one way or another into the medium run, taxes are going to have to rise.”
Confronted over the bigger tax cuts for the wealthy, Chris Philp, the chief secretary to the Treasury, said the government was not concerned about the “politics of envy”. He told Times Radio: “We’re going to do what’s right. We’re going to get growth delivered. And we’re not going to worry about the politics of envy, or the optics of it.” Aides insist that the cut to the standard rate of income tax next year will help most workers, as will the energy price cap.
Kevin Hollinrake, the Conservative MP for Thirsk and Malton in north Yorkshire, said that while he welcomed the focus on cutting taxes and growth, he thought it was “doubtful that growth would pick up strongly before the next general election”. He also made clear that any reductions in spending that might result from the need to balance the books should not result in cutting back infrastructure projects such as road improvements in his constituency.
