Chancellor Jeremy Hunt has announced plans to cut the size of the civil service as he faced Tory demands to slash taxes and trim the size of the state.
Mr Hunt said the move could save £1 billion a year and indicated that improving public-sector productivity could allow him to reduce the tax burden.
Although he ruled out sizeable tax cuts this year, he left open the door to the possibility of a pre-election giveaway in 2024 as Rishi Sunak seeks to defy the opinion polls and retain the keys to No 10.
In an indication of the pressure on Mr Hunt to reduce taxes, former prime minister Liz Truss addressed a packed meeting with a call to slash corporation tax and cut red tape.
A year on from her short-lived premiership, the size of the crowd gathered at the fringe meeting showed Ms Truss still had appeal among the party members who backed her over Mr Sunak in 2022.
Mr Hunt used his speech to confirm plans to increase the national living wage for over-23s to at least £11 an hour and impose tougher conditions on benefits.
He also set out plans to freeze civil service recruitment to save £1 billion a year.
“We have the best civil servants in the world and they saved many lives in the pandemic by working night and day,” he said.
“But even after that pandemic is over, we still have 66,000 more civil servants than before.
“New policies should not always mean new people. So, today I’m freezing the expansion of the civil service and putting in place a plan to reduce its numbers to pre-pandemic levels. ”
He suggested improving public-sector productivity levels could allow him to cut taxes.
“If we increase public-sector productivity growth by just half a per cent, we can stabilise public spending as a proportion of GDP,” he said.
“Increase it by more and we can bring the tax burden down. ”
Dave Penman, general secretary of the FDA union which represents senior civil servants, said: “With so many public services still on their knees post-Covid, it’s fantasy politics to suggest you can just get the same with significantly less resources.”
The Treasury said the size of the Civil Service will be capped before departments are asked to reduce staffing levels by 63,000.
Mr Hunt pointed towards a change to “equality and diversity initiatives”, with his spokesman saying there are up to 1,000 officials exclusively working on them.
He said the cap will find the initial savings by curbing a forecast increase to 490,000 civil servants by March 2025 from the total this summer of 457,000.
There will be no compulsory redundancies and the fast stream will be excluded from the plans, he said.
Mike Clancy, general secretary of the Prospect union, said it was a U-turn after previous commitments from the Prime Minister that there would be no top-down targets for headcount reduction.
He said: “This latest U-turn shreds any remaining doubts about the Prime Minister’s lack of personal commitment to civil servants and will further undermine vital public services which are already struggling.
“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.”
Mr Hunt used his speech to paint a positive picture about the state of the economy, with a sideswipe at critics for “talking us down”.
“It’s easy to support higher growth, better public services and lower taxes. Harder to make it happen,” he said.
“It’s time to roll up our sleeves, take on the declinists and watch the British economy prove the doubters wrong.”
In a defence of Mr Sunak’s decision to focus on cutting inflation from its 11% peak, Mr Hunt said: “Nothing hurts families more when it comes to the weekly shop, heating bills or pump prices, which is why the Prime Minister has pledged to halve it.
“We’re getting there – it was 11% , it’s now down by 40% – the plan is working and now we must see it through, just as Margaret Thatcher did many years ago.
“When we halve inflation, that’s not a 1% income tax cut, that’s a 5% boost to incomes compared to if it stayed the same.”
Mr Hunt’s speech in the main conference hall came less than two hours after Tory activists had formed a lengthy queue to see Ms Truss.
She urged members to “unleash their inner conservative” after calling for Mr Hunt to cut corporation tax to 19% or less and to slash Government spending.
“Let’s stop taxing and banning things,” she told the packed room.
“Let’s instead build things and make things.”
Ms Truss said 500,000 homes a year needed to be built, suggesting environmental protections could be torn up to encourage building, and called for ministers to permit fracking.
Meanwhile, speculation continued to mount that Mr Sunak would finally wield the axe over the HS2 route from Birmingham to Manchester as costs spiral.
Neither the Chancellor nor Transport Secretary Mark Harper mentioned the future of the high-speed line in their speeches.
Scrapping the plan to take the line to Manchester would be awkward while the Prime Minister’s party is gathered in the city and No 10 insiders insisted no final decision had been made.
Ministers – including Mr Sunak – have repeatedly refused to guarantee the line will extend beyond Birmingham in recent weeks, fuelling speculation it will be axed or delayed.
ITV and Sky both reported the Prime Minister had taken the decision to shelve it, with the money instead going to other transport schemes.
A No 10 spokesman said: “These reports are incorrect. No final decisions have been taken on phase two of HS2.”