As UK Conservatives Gather, PM Truss Defends Her Economic Plan

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PM defends economic plan, saying it is right

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Also tries to reassure party, public

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Says Kwarteng made decision on high tax rate

(Adds Truss opening the conference)

BIRMINGHAM, England, Oct 2 (Reuters) – British Prime
Minister Liz Truss tried to reassure her party and the public on
Sunday by saying she should have done more to “lay the ground”
for an economic plan that saw the pound fall to record lows and
government borrowing costs soar.

On the first day of her governing Conservative Party’s
annual conference, Truss, in office for less than a month but
already under intense pressure, sought a softer tone by saying
she would support the public during a difficult winter and
beyond.

She defended her “growth plan”, a package of tax-cutting
measures that investors and many economists have criticised for
setting out billions of pounds of spending while offering few
details on how it would be paid for in the short term.

Truss said it was the right direction, suggesting she had
not fully explained to critics the depth of Britain’s problems
and the urgent need for a radical plan. Traders and investors
have dismissed that argument as a reason for the falls in the
pound and the increase in borrowing costs last week.

But in what some Conservative lawmakers worry will hurt
their prospects at an election due in 2024, Truss did not deny
that the plan would require spending cuts for public services
and refused to commit to increasing welfare benefits in line
with inflation, while endorsing a tax cut for the wealthiest.

Asked what she was doing to ease concerns in Britain about
the impact of her plan on mortgages, loan and rental costs,
Truss told the BBC: “I understand their worries about what has
happened this week,” she told the BBC in the central English
city of Birmingham.

“I do stand by the package we announced, and I stand by the
fact that we announced it quickly because we had to act, but I
do accept that we should have laid the ground better.”

Jake Berry, chairman of the Conservative Party, suggested
the markets may have overreacted, while admitting he was not an
economist. “So let’s see where the markets are in six months
time,” he told Sky News.

TROUBLE AHEAD?

Truss took office on Sept. 6, but Queen Elizabeth died two
days later and so the first days of the new prime minister’s
term were largely taken up with the national mourning period,
when politics was all but paused.

She launched her plan two weeks after taking office, with
her team feeling she had signalled her plans during a leadership
campaign against rival Rishi Sunak, who had argued against
immediate tax cuts.

But the scale of the unfunded cuts spooked markets. After a
large sell-off, the pound has since recovered after Britain’s
central bank, the Bank of England, stepped in, but government
borrowing costs remain markedly higher.

Investors say the government will have to work hard to
restore confidence, and the BoE emergency round of bond-buying
is due to run only until Oct. 14, leaving Truss with little
time.

It was not the backdrop she wanted for her first party
conference as prime minister.

She arrived in the main hall to cheers and a standing
ovation, but only half the seats were filled, partly because of
a weekend train strike but also possibly a sign of the unease
over her package.

Some in the party fear they are at risk of being seen as
“the nasty party”, cutting taxes for the wealthiest while doing
little to improve the lives of the most vulnerable.

In what could be a sign of things to come, business minister
Jacob Rees-Mogg was heckled by a dozen protesters shouting “Not
welcome here” when he was arriving at the conference centre. He
had to be escorted by police.

One former minister, Michael Gove, long at the heart of
government, also rubbished the party’s plans to abolish the
highest 45% level of income tax, hinting he might vote against
it, and Andy Street, the Conservative mayor of Birmingham, said
he would not have made that policy.

“It is going to be very, very difficult to argue it’s okay
to reduce welfare payments when we are cutting taxes for the
richest,” Gove told an event at the conference.

Truss argued the move was part of the simplification of the
tax system, but added the decision on the top tax was taken by
her finance minister, Kwasi Kwarteng.

She also suggested that politicians spent too much time
worrying about how their policies were received by the public,
saying she was focused on driving growth.

But she struggled when pressed to answer whether scrapping
some taxes would have to be paid for with cuts to public
services. Rather than denying this, she said she wanted the best
possible services, which offer taxpayers value for money.

Further reading:

How the Bank of England threw markets a lifeline

(Reporting by Elizabeth Piper and Andrew MacAskill; Additional
reporting by Hannah McKay and Alistair Smout; Editing by Gareth
Jones, Jan Harvey and Frances Kerry)

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