Liz Truss is reportedly preparing to sack Chancellor Kwasi Kwarteng and abandon a major strand of her radical economic reforms just weeks after taking power as she tries to save her premiership after little more than a month.
The Prime Minister will hold a press conference later in which she is widely tipped to bow to political and economic pressure to increase corporation tax.
But she is due to face the cameras alone without long-term ally Mr Kwarteng by her side after tearing up another central strand of his tax-cutting mini-Budget for growth.
If he is sacrificed or resigns he will have been one of the shortest-serving chancellors in modern British politics.
Truss made scrapping plans to up the rate from 19 per cent to 25 per cent – at a cost of £18billion – a central part of her leadership campaign and it was unveiled as a policy three weeks ago as a major growth lever.
But she is expected to announce the rate will go up next year after all, after weeks of economic and political turmoil in Westminster that now threaten her position.
Mutinous Conservative MPs have given the PM 17 days to save her job, with claims that Rishi Sunak and Penny Mordaunt, both failed leadership challengers in the summer, are being lined up to replace her.
Tory whips warned she could face a leadership challenge if Kwasi Kwarteng’s economic statement on October 31 fails to end the turbulence in the financial markets.
It has been suggested they could be installed in a ‘coronation’ if no one else runs to be leader, avoiding the need to consult party members who overwhelmingly backed Ms Truss to replace Boris Johnson.
The Chancellor arrived back in London this morning after abandoning a trip to the IMF in Washington to hold crisis talks with the PM.
The markets have been volatile and the Conservative Party febrile since his announced tax cuts paid for by borrowing last month.
They have already had to announce a U-turn and reinstate the 45p income tax rate for the UK’s richest people, following a revolt.
Asked about the prospect of another humiliating U-turn, the Chancellor said yesterday: ‘Let’s see.’
Government bonds and the pound steadied at the start of London trading as the Bank of England’s bond-buying programme comes to a close, a sign markets are pricing in a U-turn.
Yields on gilts, UK Government bonds, surged amid a sell-off after Kwarteng announced unfunded tax-cutting plans in the mini-budget last month and lifted again earlier this week.
On the opening of the markets, yields on UK 30-year gilts fell back by 1.6 per cent to 4.47 per cent, while 10-year gilt yields moved 1.8 per cent lower to 4.11 per cent. Meanwhile, the pound was 0.3 per cent higher at 1.127 against the US dollar as trading sentiment improved.
Tory MP and chairman of the Treasury Committee Mel Stride said he hopes the Chancellor is flying home from the US early to have conversations with the Prime Minister and row back on tax cuts announced in the mini-budget.
Speaking to BBC Breakfast, the Central Devon MP said: ‘What I think I’d like to hear is that these rumours that there will be a reset moment around the tax measures that he announced in late September are correct because I think things have reached a stage now with the markets and with confidence in those financial markets where we need a fundamental reset, so I’m hoping that it’s to engage in conversations with the PM and others and to row back on those unfunded tax cuts announced in September.’
But former minister Nadine Dorries, who backed Truss for the leadership, accused her opponents of ‘a plot not to remove a PM but to overturn democracy’.
Trade Minister Greg Hands insisted there are ‘absolutely no plans to change anything’ in the mini-budget, including on corporation tax.
The trade minister told LBC Radio: ‘The Prime Minister and the Chancellor are absolutely determined to stick to the growth plan, to stick to the changes they outlined.’
The Chancellor left an IMF summit in Washington a day early amid signs that he and the PM are planning a massive U-turn that would scrap wide-ranging ax cuts that enraged Tory MPs and sent the markets into freefall.
Liz Truss, pictured here at Prime Ministers Questions yesterday, has been given 17 days to save her job by Tory MPs
MPs are said to be waiting until Kwasi Kwarteng (pictured) makes his economic statement on October 31
It has been reported that leader of the House of Commons Penny Mordaunt (pictured) and former Chancellor Rishi Sunak (right, with his wife) are being lined up on a joint ticket to replace the Prime Minister
Former home secretary Priti Patel last night become the latest high-profile Tory MP to suggest the Government could be forced into a further U-turn.
In an interview with Sky News, she said it was ‘vital’ and ‘imperative’ that the Truss administration now stick to the premise of the 2019 manifesto.
‘There is an irony to this,’ Ms Patel said. ‘In that market forces will probably dictate some of these changes now.
‘The market is going to dictate this, primarily because we want to see stability. Stability is absolutely crucial, for everyone to carry on living their lives, for the institutions to function, but actually for the British people to have the stability that they need in their lives as well.
‘And by that, as well, I mean mortgages, interest rates and all those crucial, crucial levers.’
Another senior Tory MP has joined calls for the Government to reverse course on the mini-budget.
Alicia Kearns, who has just been elected as the new chairwoman of the Foreign Affairs Committee, suggested the Government’s tax cuts should be scrapped to calm the markets.
She was asked on LBC’s Tonight With Andrew Marr whether she would like to see the tax cuts reversed.
‘Do I think we should be borrowing en masse where our children have to pay this back for decades to come? No, I don’t,’ she said.
Pressed by Marr, she stressed that sometimes Governments need to take ‘extraordinary steps’.
‘But clearly, in the approach and the manner in which this has been done, that is the issue. Because the markets are not woke, the markets are not left. The fact they are not lefty, anti-government, the fact they have been spooked, is something that should be taken incredibly seriously. And often it is about the manner, and the fact is we govern only with the support of the people, and we are not bringing them with us currently.
‘We all want Liz Truss to succeed in that the country needs her to succeed. And it is about recognising that actually, sometimes baby steps can result in more meaningful and embraced change than perhaps a bonfire.’
It comes as panicked Tory MPs engaged in fevered discussions about whether to try to remove Miss Truss barely a month into her premiership – and who might replace her.
A former Cabinet minister said: ‘It is all about the statement on October 31 now – she has got days to turn things around, that’s all.
‘She is going to have to reverse the mini-Budget and she is probably going to have to sack Kwasi. Even then it might not be enough if she can’t regain the confidence of the markets.
‘The worry is that she still appears to be in denial about how bad things are.’
A Downing Street source acknowledged that the waters threatening to engulf the PM are ‘choppy and might well get choppier’ but insisted: ‘There is a way through.’
Party grandees are reportedly talking of replacing Miss Truss with a unity ticket of Mr Sunak and Miss Mordaunt – who were second and third in the leadership contest.
Some 20 to 30 senior MPs, including former ministers, are attempting to form a ‘council of elders’ to tell the PM to quit, The Times reported.
One MP said: ‘Rishi’s people, Penny’s people and the sensible Truss supporters who realise she’s a disaster need to sit down together and work out who the unity candidate is.
‘It’s either Rishi as prime minister with Penny as his deputy and foreign secretary, or Penny as prime minister with Rishi as chancellor.’
To avoid more ‘blue on blue’ attacks, one of the two would be selected and enter No 10 in a coronation-style affair.
Greg Hands said he does not recognise reports that senior Tories are plotting the possibility of replacing Liz Truss with a joint ticket of Rishi Sunak and Penny Mordaunt.
The trade minister told Sky News: ‘I don’t recognise that story at all.
‘I was a supporter of Rishi Sunak; somehow I’d be very surprised at that story. I was talking only yesterday with Penny Mordaunt. I don’t recognise that story at all.’
Mr Hands, who was a prominent backer of Ms Truss’s Tory leadership rival Mr Sunak, was asked if the markets would have more confidence if Mr Sunak was in No 10.
He said: ‘Rishi Sunak did not win the leadership contest, Liz Truss did win the leadership contest. I am dealing with the situation that we are in’.
But Foreign Secretary James Cleverly told the BBC that ‘changing the leadership would be a disastrously bad idea politically and economically’.
In a message on Twitter, Mrs Dorries urged warring MPs to unite behind the PM.
She claimed: ‘MPs circulating a smorgasbord of names about who should replace Truss as PM are not taking into account the fact they cannot foist upon the British public another prime minister that the public have not voted for. A totally untenable position.’
And former Tory chancellor Lord Lamont said it would be ‘farcical’ for Tory MPs to move against Miss Truss just weeks after she took office.
The Chancellor is due to fly back from Washington today and is expected to hold crisis talks with the PM and other senior ministers over the weekend about the future of the tax-cutting measures in the emergency mini-Budget.
Mr Kwarteng is set to unveil the Government’s ‘medium-term fiscal plan’ on October 31 where he is expected to set out plans for shoring up Britain’s battered public finances.
Three days later the Bank of England is due to announce a major hike in interest rates, bringing more pain for millions of homeowners.
Miss Truss has ruled out major cuts in public spending to help fill a black hole in the public finances estimated by some forecasters to top £60billion.
The Chancellor has already been forced to abandon his plan to scrap the 45p top tax rate following a backbench Tory revolt.
Westminster was awash with rumours yesterday that the PM is poised to drop the corporation tax pledge which was central to her leadership campaign.
Former home secretary Priti Patel last night suggested a U-turn on corporation tax was almost inevitable given the negative market reaction.
Under Tory party rules, Miss Truss cannot face a formal leadership challenge until September next year.
But senior Tories are already looking at options for removing her if the situation deteriorates.
One said: ‘The rules can be changed at any time. If she loses the confidence of the parliamentary party and cannot regain it, then she will have to go. Of course it will look bad. But we have a duty to stop things descending into the kind of chaos that causes long-term damage.’
It comes as the PM’s approval ratings have plummeted by almost half to just 9 per cent in the three weeks since the mini-Budget.
The survey by People Polling, commissioned by GB News, suggested she’s on the same popularity level as Prince Andrew.
Liz Truss ‘seems to be in denial about how dire the situation is’: So what happens next… and could Rishi Sunak (or even Boris Johnson) come back?
ByPolitical Editor For The Daily Mail
Liz Truss is desperately seeking solutions after she was accused of ‘trashing the last 10 years’ of work in a brutal showdown with Tory MPs last night.
The Prime Minister has been described as ‘in denial about how dire the situation is’, and is being warned that she must rethink on key measures in Kwasi Kwarteng’s mini-Budget, which helped trigger market chaos that has sent the Pound plummeting and government borrowing costs soaring last month.
The grim situation the Conservatives face has been underlined by a poll showing Labour leading by 13 points in the so-called ‘Blue Wall’ – suggesting Keir Starmer would seize a swathe of previously safe seats in heartlands.
And some Tory MPs are plotting to replace Ms Truss with a ‘dream ticket’ of her leadership contest rivals Penny Mordaunt and Rishi Sunak, while others want a comeback for Boris Johnson.
MPs on all sides believe the publication of the Government’s ‘medium term fiscal plan’ on October 31 is now central to the survival of both the PM and Chancellor.
Tory MPs have been horrified by the slide of the pound on the back of Liz Truss’s mini-budget
Why is the Prime Minister in trouble?
The immediate cause of the PM’s problems is the negative market reaction to last month’s emergency mini Budget. Tory MPs have been horrified by the slide in the pound and the subsequent jump in mortgage rates, for which they fear the Government will be blamed, fairly or not. They have also been stunned by a series of opinion polls suggesting Labour has surged into a 30-point lead, which would see dozens of them lose their seats.
But MPs have also been unimpressed by the PM’s failure to try to carry the party with her. An hour-long meeting with backbenchers on Wednesday night soured relations further. One MP said: ‘The atmosphere was funereal. There was nothing to give you hope that she can get us out of this – in fact she still seemed to be in denial about how dire the situation is.’
Could Tory MPs really topple Liz Truss after just a few weeks in office?
Under Tory Party rules, MPs cannot force a vote of confidence in a new Conservative leader for 12 months, regardless of how many of them submit letters of no confidence. Bob Blackman, secretary of the 1922 Committee, yesterday said that next September is ‘the earliest a confidence vote can be held’ and urged restive MPs to ‘stop sniping’ at the PM.
In reality, the rules are a red herring. Tory grandees are already considering options for changing them. And senior Tories argue that no leader could continue if they had clearly lost the confidence of their MPs. They cite the example of 2019 when Theresa May decided to resign after being warned that the rules would be changed to allow another vote against her.
Chancellor Kwasi Kwarteng (pictured) and the PM are the closest of allies. But Ms Truss has already had to do a U-turn over his plan to scrap the 45p top tax rate. Another U-turn would raise questions over his future
Some Tory MPs also fear that the party would face ridicule if it changed leader again, and would face intense pressure to hold a general election.
What is the crunch point?
MPs on all sides believe the publication of the Government’s ‘medium term fiscal plan’ on October 31 is now central to the survival of both the PM and Chancellor. The dry-sounding document is designed to set out how the Government will balance the books in the wake of last month’s tax-cutting mini-Budget. Independent think tanks have suggested the black hole that needs to be filled could top £60billion.
Miss Truss has ruled out deep public spending cuts, and ministers are now examining whether parts of the mini-Budget may have to be dropped.
On November 3 the Bank of England is expected to announce a major rise in interest rates. Rebel MPs warn that if the PM fails to reassure the markets she could face an immediate leadership challenge. Allies believe that if she can weather the storm she can buy time to get the rest of her premiership back on track.
Could the plan to axe a rise in corporation tax be scrapped?
Miss Truss’s pledge to reverse Rishi Sunak’s £18billion corporation tax hike was a central plank of her leadership campaign and the single biggest measure in last month’s mini-Budget.
The PM publicly defended the plan on Wednesday, saying: ‘It would be wrong, in a time when we are trying to attract investment into our country and at a time of global economic slowdown, to be raising taxes.’
Senior Tory MPs are united in the belief that the two-month leadership contest went on far too long. Penny Mordaunt (pictured) is among the names being touted to take charge without a membership vote
Ditching the measure would be a humiliating climbdown for both the PM and Chancellor and a devastating blow to the Government’s growth agenda. But Chancellor Kwasi Kwarteng did not deny reports last night that it could be dropped, saying only: ‘Let’s see.’
How is Team Truss bearing up?
The Prime Minister has acknowledged that she should have ‘laid the ground better’ for the radical mini-Budget. But allies are deeply frustrated by the reaction to her plans. The PM believes the Government has been given too little credit for the £10 billion-a-month Energy Price Guarantee, which will help millions of households and businesses this winter, and which dwarfs any of the tax measures in the mini-Budget.
And Miss Truss’s allies say there has been too little focus on the international context, pointing out that European countries such as Germany and the Netherlands are facing double digit inflation and that interest rates are rising fast across the West.
Would there be a leadership contest if Miss Truss is ousted?
Senior Conservatives are united in their belief that the two-month leadership contest that Miss Truss won went on for far too long and could not be repeated at a time of national crisis.
Those plotting to remove the PM also fear that their favoured candidates would be punished by Conservative members. So rebel MPs are now discussing whether they could produce a repeat of the 2003 contest when rivals stood aside to allow Michael Howard to take charge without a membership vote.
Rishi Sunak, pictured with his wife Akshata Murty, has also been discussed as someone who could take charge
Rishi Sunak and Penny Mordaunt are among the names that are being touted. But, with the wounds of the recent leadership contest still fresh, they are nowhere near the consensus needed to produce a so-called ‘coronation’.
Could Boris Johnson make a comeback?
As the outgoing leader, Boris Johnson was barred from standing in the last contest despite a grassroots campaign to have his name put on the ballot. But there is nothing in the Conservative Party rules to prevent him standing again if the PM falls. Supporters believe he is the only candidate who could reverse the Tories’ election fortunes, potentially saving the seats of dozens of Conservative MPs.
But a friend said the PM was still feeling ‘bruised’ by the coup against him and is keen to secure his finances by making money on the international speaking circuit. He is also facing a controversial Commons inquiry into his conduct during the Partygate affair. And critics warn that the faults which saw him forced out could be repeated if he is given another chance.
Boris Johnson has also been speculated as a potential replacement but a friend said the PM was still feeling ‘bruised’ by the coup against him and is keen to secure his finances by making money on the international speaking circuit
Will the Chancellor be sacked?
The PM and Chancellor are the closest of allies, with a friendship that stretches back years. They also share a clear belief that tax cuts are needed to jolt the economy out of years of stagnation.
Mr Kwarteng was informally offered the job in early August – almost a month before the PM won the leadership contest and the pair worked hand in glove as they drew up their growth plan in the following weeks.
But the PM has already forced Mr Kwarteng to U-turn over his plan to scrap the 45p top tax rate after being warned Tory MPs would join with Labour to vote it down. If he has to drop other key measures in his mini-Budget then he would face serious questions about his own credibility and might feel the need to resign. In extremis, the PM could sack him to save her own skin, but it would be a bitter blow.