UK Prime Minister Liz Truss is today facing a new battle with Tory MPs over benefits, after being forced to abandon the abolition of the 45p top rate of tax.

Downing Street is reported to be considering not increasing Universal Credit in line with inflation, but instead using a lower metric - such as the increase in average earnings - to encourage those on benefits into work.

Tory rebels who forced the PM into her top tax rate about-turn, including Michael Gove, were already breaking ranks yesterday and warning against the change.

The Telegraph has revealed there is also unease at the top of Government, with some Cabinet ministers understood to believe that refusing to increase benefits by inflation is a "non-starter".

But No 10, considering the options, is preparing to question whether it is fair for people on benefits to get inflation-linked rises while scores of workers get real-terms pay cuts.

Unemployment levels in Britain are at a record low, making it harder for employers to fill positions and leading to calls for more to be done to incentivise people to take jobs.

Not ruling out benefit cuts

Ms Truss is refusing to rule out real-terms benefit cuts to help pay for her government's tax-cutting growth plan.

The PM's predecessor, Boris Johnson, promised to increase benefits in line with inflation.

But, asked whether she would maintain the commitment, Ms Truss told the BBC that the government had to be "fiscally responsible" and bring debt down.

The benefits battle looks set to be the new front in Tory infighting, with Ms Truss's premiership not yet a month old.

Writing in the Telegraph, the Prime Minister has made her first public comments on the 45p reversal - saying the policy had become an "unnecessary distraction".

She also hinted at humility over the backlash, saying: "I want to bring the public with me. I want to win hearts and minds because I really believe my plan is the right one for the country."

Pursuing her agenda

However, she restated her determination to pursue the agenda she set out over the summer - a sign that she is willing to fight for traditional Tory policies such as incentivising more people into work.

Ms Truss said: "In order to get Britain moving, we need to have the courage of our convictions. As Conservatives, we have fallen out of the habit of making Conservative arguments.

"I believe in the values of our party - low taxes, enterprise and aspiration. But we need to start making those arguments again from first principles and bring the British people with us.

"We need to move away from the politics of distribution and work together to build a high-growth, low-tax economy."

Ms Truss and Kwasi Kwarteng, the Chancellor, were forced into a U-turn over the top rate of tax early on Monday.

In his speech to the Conservative Party conference, Mr Kwarteng acknowledged it had been a "tough" day but added: "We need to move forward, no more distractions, we have a plan and we need to get on and deliver it."

Fiscal plan being published earlier

The Chancellor's medium-term fiscal plan was due to be unveiled on November 23, but a Treasury spokesman says that work had been sped up and it was now set to be published earlier.

In his speech to the Tory conference, Mr Kwarteng said it would be published "shortly".

Current government policy, as set by Rishi Sunak when he was chancellor, is to increase benefits in line with September's inflation rate. Some 5.7million people were on Universal Credit this summer in England, Scotland and Wales.

But Treasury ministers have refused to publicly confirm that the Truss administration will adopt the same approach, leaving open the possibility that the rise will not match inflation next year.

With no final decisions taken, Downing Street is understood to be considering a number of different options - including linking benefits to the increase in average earnings, 5.5%.

Inflation is almost 10% and could rise higher, depending on the impact of the energy bill freeze.

The Institute for Fiscal Studies said it would cost £7billion more next year to link Universal Credit to inflation, rather than to average earnings.

A decision is needed by November and will come into effect from next April.

More like this…

View all