Liz Truss has defended the Government’s mini-budget as the “right plan” even after it sent the pound tumbling and forced the Bank of England to launch emergency action to prop up pension funds.
During a round of local radio interviews, she backed Chancellor Kwasi Kwarteng’s fiscal statement on Friday but stopped short of guaranteeing people’s pensions were secure. She said: “I am very clear the Government has done the right thing. This is the right plan that we’ve set out.”
But Ms Truss has come under fire from heavyweight figures including the former Bank of England governor Mark Carney and ex-chancellor Ken Clarke for spooking financial markets with the plan for £45 billion of unfunded tax cuts.
The PM has been accused of “going missing” during the crisis but broke her silence on Thursday morning. Speaking to BBC Bristol, Ms Truss was asked whether she could guarantee pensions were safe following Wednesday’s market turmoil.
“Well, the Bank of England does a very, very good job on delivering financial stability,” she said. Pressed again on whether she could guarantee that people’s pensions were safe, she could only say: “Well, the Bank of England do that and they do a very good job of it.”
Labour’s shadow work and pensions secretary, Jonathan Ashworth, said in response: “The comments from the Prime Minister this morning are extremely worrying. People deserve to know what these market movements mean for their pensions.”
In a dramatic intervention, the Bank stepped in on Wednesday with a £65 billion bond-buying programme to address what it described as a potential “material risk to UK financial stability”.
The move came after the value of government bonds plummeted in response to Mr Kwarteng’s fiscal statement, threatening the solvency of pension funds. The Bank feared the funds would have to sell-off bonds, triggering a vicious downward spiral.
The value of bonds recovered quickly following the Bank’s announcement but financial markets were again turbulent this morning. The FTSE 100 fell 111 points to 6893 and sterling fell 0.1 cents against the dollar to $1.083.
Former Bank governor Mr Carney accused the Government of under-cutting the central bank’s efforts to rein in rocketing inflation and said the absence of scrutiny of the Government’s plans by the UK’s independent forecasters, the Office for Budget Responsibility (OBR), had compounded the market woes.
He told BBC Radio 4’s Today programme: “Unfortunately having a partial budget, in these circumstances — tough global economy, tough financial market position, working at cross-purposes with the Bank — has led to quite dramatic moves in financial markets.
“There was an undercutting of some of the institutions that underpin the overall approach — so not having an OBR forecast is much-commented upon and the Government, I think, has accepted the need for that, but that was important.” Bond yields, which the Bank is trying to bring lower, nudged slightly higher today.
Russ Mould, investment director at AJ Bell, said: “The great gilt calamity of 2022 continues to inflict pain on investors as pension companies took a tumble on the UK market, dragging the FTSE 100 down with them. Having fallen yesterday afternoon after intervention by the Bank, gilts started to nudge higher again today.”
Susannah Streeter at Hargreaves Lansdown added: “As pulses are continuously checked across asset classes, for fresh signs of panic, the clock is ticking for the Truss administration to come up with full costings of its plans which have caused such uproar in the financial markets.”
The mayhem in financial markets has led some Tory MPs to privately question whether Ms Truss may be forced to sack her Chancellor, just weeks after taking office. A number of senior Conservatives are calling on him to bring forward a statement on how the Government will pay for the tax cuts with departments now being told to make sweeping efficiency savings.
But Ms Truss repeatedly defended the steps it had taken since she became Prime Minister earlier this month, insisting she had to act to address the looming energy bills crisis caused by Vladimir Putin’s invasion of Ukraine.
She said: “We had to take urgent action to get our economy growing, get Britain moving and also deal with inflation. Of course that means taking controversial and difficult decisions but I am prepared to do that as Prime Minister because what is important to me is that we get our economy moving, we make sure that people are able to get through this winter and we are prepared to do what it takes to make that happen.”
She acknowledged the measures announced in the mini-budget would take time to have an effect and sought to assure that the Chancellor was working “very, very closely” with Bank of England governor Andrew Bailey. She said: “We won’t see growth come through overnight. What is important is that we are putting this country on a better trajectory for the long term.”
