Truss faces new challenge over UK welfare payments

  • Pressure builds over future benefit policies
  • Truss, Kwarteng to set out full fiscal plan
  • Truss refuses to rule out limits to welfare payments

BIRMINGHAM, England Oct 4 (Reuters) – British Prime Minister Liz Truss triggered a new row in her party on Tuesday by suggesting she could limit increases in benefit payments by less than soaring inflation as she seeks ways to fund her tax-cutting growth plan.

Britain’s new leader has endured a tumultuous time since she came to power on Sept. 6, first leading national mourning for Queen Elizabeth before releasing an economic package that immediately roiled financial markets.

Seeking to snap Britain out of more than 10 years of economic stagnation, Truss and her finance minister Kwasi Kwarteng set out 45 billion pounds of unfunded tax cuts on Sept. 23 alongside promises to deregulate the economy to stoke growth.

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On Monday, they bowed to pressure to scrap the most divisive policy – eliminating the top rate of income tax for the highest earners – and are now working urgently to set out how they can afford the other tax cuts without leaving a huge black hole in the country’s public finances.

“We have to look at these issues in the round. We have to be fiscally responsible,” Truss told BBC Radio when asked whether benefit payments would rise in line with record-high inflation to prevent the poorest in society from becoming poorer.

Immediately lawmakers in Truss’s Conservative Party – some who helped force the top tax rate reversal – opposed any move to reduce the increases in benefits at a time when millions are struggling with higher costs of food and energy.

Penny Mordaunt, who is in Truss’s cabinet of senior ministers, said benefits should rise in line with inflation. Damian Green, part of the party’s centrist faction, said he doubted any real-terms cut would pass a parliamentary vote.

“I think there will be many of my colleagues who think that when you’re reaching for spending cuts, benefit payments are not the way to do it,” Green told BBC Radio. Another lawmaker, Roger Gale, also signaled his opposition.

Victoria Prentis, a minister in the Department for Work and Pensions, told Reuters the government had to go through the numbers before it could take a final decision on benefits.

British interior minister Suella Braverman accused certain sections of the party of staging “a coup effectively” over the top tax rate cut. “I am very disappointed to say the least about how some of my colleagues have behaved,” she said, at the party’s annual conference.

Braverman also said when she ran for leader of the party she “was actually quite clear … that I wanted to cut welfare spending”, adding she supported the cut to the top rate of tax.

Kwarteng has set Nov. 23 as the date for his next fiscal statement. A government source said the Treasury was considering bringing that forward but any change would most likely be announced once parliament resumes next week. read more

POLITICAL TURBULENCE

Truss became Britain’s fourth leader in six years last month, promising to reignite the economy and bring some political stability after the chaotic leadership of Boris Johnson.

Chosen by her party’s members, not the broader electorate, she was not the most popular candidate among the more than 350 Conservative members of parliament and her decision to stake out a tax cut plan and then concede defeat has left lawmakers and investors questioning her judgment and authority.

At the annual conference in Birmingham, central England, some lawmakers and commentators have questioned whether she has a mandate to take Britain back to a 1980s-style Reagonomics policy without a national election.

The Conservatives won the 2019 election with Johnson promising to increase spending on public services.

“It is not a great thing to sell the public on one type of package and vision, and then completely flip it and appear not to care,” Rachel Wolf, the co-author of the Conservatives 2019 manifesto, said on Sunday.

Investors have also taken fright at the new economic policy direction, hammering the value of British assets so hard that the Bank of England had to intervene last week with a package worth up to 65 billion pounds to shore up the bond market.

Mortgage costs have already risen.

Mohamed El-Erian, an adviser to financial services giant Allianz, said the government needed to get its house in order. “We are not a developing country and we need to stop acting like a developing country,” he told Sky News.

The BoE action has calmed markets, at least for now, while investors also took some comfort from the tax U-turn and the hoped-for move to bring forward the publishing date for the next fiscal plan from Nov. 23.

But Boris Glass, senior economist at S&P Global ratings agency, said Britain faced a difficult winter.

“Unless strong medium-term growth can fully fund the extra spending, medium-term fiscal tightening appears inevitable, which may weigh on future growth,” he said.

($1 = 0.8782 pounds)

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Writing by Kate Holton, Reporting by Andrew MacAskill, Elizabeth Piper and Alistair Smout in Birmingham, Kylie MacLellan and Sarah Young in London. Editing by William Maclean, Jon Boyle, Alexandra Hudson

Our Standards: The Thomson Reuters Trust Principles.

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