Rishi Sunak made a pitch to the Tory right with plans to scale back HS2, slash the Civil Service and impose tougher benefits conditions as Liz Truss presented a threat.
The former prime minister drew crowds of the membership at the party conference in Manchester on Monday as she urged tax cuts to “make Britain grow again”.
Chancellor Jeremy Hunt has ruled out sizeable tax cuts this year, but did make offerings that will go down well with the Truss-backing right of the party.
He announced a cap on Whitehall hiring to save up to £1 billion a year and ordered plans to shrink the number of officials back to pre-pandemic levels.
November’s autumn statement was billed as including steps to make it harder for people to claim benefits if they are failing to take “active steps” to move into work.
Mr Hunt also left open the door to the possibility of a pre-election tax giveaway in 2024 as the Prime Minister seeks to defy the opinion polls and retain the keys to No 10.
The Prime Minister seemed set to axe the Birmingham to Manchester leg of HS2, a bugbear of some Tories over its vast cost and impact on rural constituents.
Ms Truss was courting vast support among the party membership that selected her over Mr Sunak last summer, before the chaotic implosion of her 49-day premiership.
Going into conference, Mr Sunak would have been mindful that it was Tory MPs, who are generally closer to the centre than the membership, who were the ones that handed him the keys to Downing Street.
A queue of Tory members snaked through the fringes of the conference as they sought to attend the packed rally held by Ms Truss and her allies.
The MP called for cuts to corporation tax and regulation as she urged members to “unleash their inner conservative”.
“Let’s stop taxing and banning things,” she said. “Let’s instead build things and make things.”
Other groups on the right of the party were also gathering momentum, as the New Conservatives set out proposals to ban “gender ideology” being taught in schools at a standing room-only event.
A short while later, Mr Hunt confirmed in the main hall plans to increase the national living wage for over-23s to at least £11 an hour and impose tougher conditions on benefits.
He pointed towards cutting back on officials working on “equality and diversity initiatives”, in language echoing a leadership campaign pitch from Ms Truss.
Mr Hunt suggested improving public-sector productivity levels as they trim back on thousands of officials could allow him to cut taxes, as many in the party are clamouring for.
“If we increase public-sector productivity growth by just half-a-percent, we can stabilise public spending as a proportion of GDP,” he said.
“Increase it by more and we can bring the tax burden down.”
Mike Clancy, general secretary of the Prospect union, said the move was a U-turn from a previous commitment from Mr Sunak that there would be no top-down targets for headcount reduction.
“We now have Government ministers rushing out policies at Tory conference in a desperate attempt to shore up their own support from the hard right of their party,” he added.
Dave Penman, general secretary of the FDA union which represents senior civil servants, said the announcement was out of the playbook of Jacob Rees-Mogg, the former Cabinet minister who spoke alongside Ms Truss at her rally.
He said the plan was “fantasy politics of the worst kind” and indicated it could damage relations between officials and ministers, as happened under former prime minister Boris Johnson.
Meanwhile at the conference:
– Transport Secretary Mark Harper said councils could be blocked from fining drivers as he targeted “sinister” 15-minute cities, a subject that has provoked conspiracy theories
– A review of regulators so “Brexit freedoms” can be used to reduce bureaucracy was launched by Business Secretary Kemi Badenoch
– Culture Secretary Lucy Frazer announced new guidance to ensure statues are explained rather than torn down following the toppling of the figure of slave trader Edward Colston
– Education Secretary Gillian Keegan took on teaching unions by suggesting minimum service levels could be extended to striking university staff.
Downing Street insists that “no final decisions” have been made over axing the HS2 leg from Birmingham to Manchester, with Cabinet sign-off expected before an announcement.
But a spokesman for Mr Hunt did not deny plans had been approved in the Treasury and said an announcement from the Prime Minister would come “in due course”.
Mr Sunak will give his set-piece speech to the membership on Wednesday.