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Liz Truss Warned "All Hell Will Break Loose" If Government Doesn’t Raise Benefits By Inflation

Liz Truss faces pressure to guarantee benefits will go up in line with inflation (Alamy)

5 min read

A former cabinet minister has warned “all hell will break loose” if Prime Minister Liz Truss doesn't meet demands to raise benefits in line with inflation as she battles to build bridges with her fractious party.

Downing Street has confirmed a decision to lift welfare payments by either the rate of CPI or average earnings – which would be much lower – will be announced as part of Chancellor Kwasi Kwarteng’s “medium-term fiscal plan” later this month, but Truss is believed not to have made up her mind on the matter. 

The Prime Minister is under increasing pressure from both backbench MPs and members of the cabinet to commit to the higher rate as quickly as possible, and avoid giving benefit claimants a real-terms cut next year.

“My feeling is that they will, but all hell will break loose if they don’t,” said a former Cabinet minister, who has been one of those applying pressure in recent days.

Tory MPs have been meeting this week to discuss how to apply pressure on Downing Street and the Treasury and the Department for Work and Pensions to stick with the inflation calculation, as has been the case in previous years.

Truss is back in No 10 this week following a rebellion against her economic plans which marred her first party conference as Prime Minister in Birmingham last week, and has already begun hosting backbenchers today in an attempt to get them back on side. 

PoliticsHome understands government whips did their first ring around of MPs since the "mini-Budget" over the weekend, and asked what their views were on the benefits uprating before anything else. 

One former-whip said “they must have realised they didn’t have the numbers for anything other than lifting them by inflation".

The former-Cabinet minister said the new Downing Street team “is on a massive learning curve”, and having spooked the financial markets with sweeping tax cuts are now having to row back on some early decisions in an attempt to win back some confidence. 

After a number of Cabinet ministers called for party unity over the weekend, on Monday the government announced that James Bowler, a civil servant with 20 years experience in the Treasury, had been appointed the new Permanent Secretary to the department. It had been anticipated that Antonia Romeo – a Treasury with a reputation as a disrupter – was Kwarteng's first choice for the role. 

Kwarteng also announced yesterday he would be bringing forward his fiscal plan from 23 November to 31 October, and with it the Office for Budget Responsibility’s (OBR) independent forecast of the economy.

The former whip, a Truss critic, said the move has bought the government some time, and has “calmed people” who were angry at having to wait another six weeks for the OBR report.

“Maybe the penny has dropped that the big stick approach isn't going to work,” they said.

“Maybe listening and engaging with backbenchers might be a more productive way forward, so if that's the case, I think that's very welcome.

“Some of it is just ideology meeting political reality, they're just not going to be able to press ahead with some of the stuff that they say they want to do.”

They added: "None of us want the next six months just to be continual battles, so if they just step back a bit and listen and engage and see where what is deliverable, that would be a very good move.”

The former whip said the Tory party “couldn’t keep going on arguing for six weeks, but hopefully we can hold tight for two weeks or so” and see how the market responds before deciding what to do.

But a senior Conservative MP said the ongoing volatility in the price of gilts and government bonds, which saw the Bank of England forced to intervene for a second time since the mini-Budget this morning, shows the markets are still very worried about the direction the government is heading in.

“Investors are now clearly worried about what is going to be in the medium-term fiscal plan, and they don’t seem prepared to wait and see, even if it’s just for a few weeks now, to see what happens,” they told PoliticsHome.

“There is a real risk things get worse before Kwarteng even gets a chance to set out his plans.”

This afternoon the International Monetary Fund (IMF) suggested the government’s policies have made the Bank of England's battle to curb inflation more difficult.

But the PM's official spokesperson continued to defend the tax-cutting agenda this morning. 

"I think the government puts in place policies to support British people at a time of global high prices," they said. 

"That's why we think it's right to step back from the highest tax burden in 70 years and ensure the public can keep all of the money they earn.

"I think the IMF projections set out global challenges that countries are facing.”

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