Liz Truss on verge of major U-turn on real-terms benefits cut

Latest news on the “Nasty Party” – Owl

Liz Truss is teetering on the edge of performing another big U-turn as Tory MPs warned she would lose a vote on delivering a real-terms cut to benefits while new research showed the move could push an extra 450,000 people into poverty.

Aubrey Allegretti 

Despite desperate pleas for party unity from senior ministers after weeks of bitter infighting, the row over welfare threatened to overshadow the prime minister’s attempt to reassert her authority when the Commons returns from recess on Tuesday.

Fresh threats of moves to oust Truss if she digs in were also being discussed by MPs over the weekend, while senior Tories, including former chancellor George Osborne, warned the Conservatives ran the risk of a wipeout at the next election for embarking on a “political experiment”.

In their ring-around of colleagues on Sunday, government whips were warned that dozens of Tory backbenchers would rebel against benefits rising in line with earnings – about 5.5% – rather than September’s inflation figure, which stands at about 10%.

While no formal vote is required, it is believed that an amendment would be tabled to the finance bill which would force all MPs to show their hand.

Unease extends the full length of the party, with some figures in the cabinet thought to be pushing Truss to match the inflation increase. One government source put the number of backbenchers who would rebel at least 30, while another said No 10 would be “forced to cave”.

Truss’s U-turn last week to reinstate the top rate of tax after the chancellor, Kwasi Kwarteng, announced it would be abolished in the mini-budget has given some Tory MPs heart they can force another climbdown. “She gave in on 45p, she’ll have to do so again,” said one.

In a sign Truss was softening her stance, a No 10 source insisted “nothing is decided” and added: “She will listen.”

It came as new analysis by a conservative thinktank, seen exclusively by the Guardian, showed low-income households with children, or people with disabilities, would bear the brunt of any move to uprate universal credit and other working-age benefits in line with earnings rather than inflation.

Such a move would swell UK relative poverty rates already at their highest level this century, the Legatum Institute said, as the cost of living crisis leaves millions of people struggling to pay energy bills and put food on the table regularly.

Legatum estimated more than 1.5 million more people in the UK will be in relative poverty this winter compared with before the Covid pandemic, even after the government’s energy support packages. Real-terms benefit cuts next April would boost the overall figure to 16 million, nearly a quarter of the UK population.

Tory peer Lady Stroud, the chief executive of Legatum, urged ministers to uprate benefits in full. “Failing to do so … would consign many on low incomes to a winter of impossible choices between heating their homes, putting food on the table or putting fuel in their car to get to work,” she said.

Conservatives from all wings of the party are angry Truss is prepared to drop Boris Johnson’s promise, made in May, to uprate benefits in full, potentially leaving millions of low-income families hundreds of pounds worse off in the middle of a cost of living crisis.

Those who have publicly opposed a real-terms cut to benefits include the Commons leader, Penny Mordaunt, the former chief Brexit negotiator Lord Frost, and the former culture secretary Nadine Dorries, who called the cuts “cruel” and “a lurch to the right”.

Stephen Crabb, a Conservative MP and former work and pensions secretary, said the Legatum findings were “further evidence cutting benefits in real terms will inevitably lead to an increase in poverty and hardship, at the worst possible time”.

The welfare budget was targeted by ministers after it became clear the government would need to cut billions from public spending after its disastrous mini-budget last month. Uprating by earnings would save the Treasury about £5bn, an option condemned by anti-poverty campaigners as “morally indefensible”.

The Legatum Institute analysis found uprating benefits in line with earnings rather than – as is the convention – September price inflation would result in 450,000 more people in poverty in 2023-24. Of these, 350,000 would be in households where someone works, and 250,000 in families that included a disabled person.

Such a cut would also result in a quarter of a million more people pushed into “deep poverty”, defined as an income at least 50% below the official poverty line. People in deep poverty are in near destitution, facing a constant struggle to afford basic essentials such as food, energy, clothing and toiletries.

Legatum also modelled the impact of an even more severe real-terms cut – freezing benefits at their 2022 levels. This would result in an extra 1 million people in relative poverty next year, including 700,000 people in deep poverty.

The findings were echoed in a separate study by the charity Child Poverty Action Group (CPAG), which concluded 200,000 children – almost all in families where one parent is working – would be in poverty if benefits were raised in line with wages rather than inflation.

An analysis by consultants Policy in Practice estimated low-income families would be almost £400 a year worse off as a result of real-terms cuts. The cut is even larger for some groups, with in-work households losing out by £458 and couples with children £640 worse off.

Given the Conservatives’ poll ratings, which are hovering about 30 points behind Labour, some have warned Truss could lead the party to electoral annihilation.

Dorries on Sunday told the BBC that if an election were held tomorrow, the Tories would face a “complete wipeout”, while Osborne believed voters would judge the prime minister’s “political experiment” harshly. “I think a Tory wipeout is potentially on the cards, but we’ve got two years to run,” he told Channel 4.

However, Nadhim Zahawi, the chancellor of the duchy of Lancaster, appealed for colleagues to come together and warned that inter-party division would only hamper delivery of policies, leading to defeat. He said the Conservatives had 24 months to win back trust, suggesting the election would be in October 2024.

A Department for Work and Pensions spokesperson said: “The secretary of state commences her statutory annual review of benefits and state pensions from late October using the most recent prices and earnings indices available.

“We are committed to looking after the most vulnerable which is why we’ve delivered at least £1,200 of support to families this winter while also saving households an average of £1,000 a year through our energy price guarantee. This support is on top of the annual working-age benefits bill which is over £87bn.”