Liz Truss still rejects austerity, Downing Street has said, despite warnings that more than £60 billion of spending cuts are needed to reduce debt without cancelling tax cuts.
The Prime Minister also remains “committed” to the growth measures set out in the Chancellor’s mini-budget, despite the ensuing market turmoil that has forced the Bank of England to intervene once again.
Kwasi Kwarteng will have to find “big and painful” cuts to public services to get the public finances back under control, according to leading economic think tank the Institute for Fiscal Studies (IFS).
But Ms Truss’s official spokesman insisted there will be no return to austerity under her Government.
Asked if she stood by her predecessor Boris Johnson’s commitment that the austerity era would not make a comeback, he said: “Yes.”
He continued: “Clearly we recognise in the first instance it will be the Chancellor who comes forward with our medium-term fiscal plan, we will set out our position then.
“These are challenging times and we have made significant interventions costing many billions to provide the necessary support to protect people from these global challenges.
“Obviously that will require some decisions on spending, but it will be the Chancellor who comes forward to set those out.”
Chancellor @KwasiKwarteng has promised a 'fully costed plan to get debt falling in the medium-term’.
— Institute for Fiscal Studies (@TheIFS) October 11, 2022
But stabilising debt as a fraction of national income in 2026–27 would require a fiscal tightening of around £60bn on @Citibank’s central forecast.
[#IFSGreenBudget THREAD: 1/8] pic.twitter.com/OOKFu8xfzx
Mr Kwarteng is due to set out his medium-term fiscal plan explaining how the Government will get debt falling as a proportion of national income in the wake of his £43 billion mini-budget tax giveaway on October 31.
The IFS said efficiency savings and “trimming the fat” were not enough, and that cuts on the necessary scale were “extraordinarily hard to achieve” after 12 years of austerity.
With the NHS likely to need additional funding and Ms Truss committed to increasing defence spending, “cuts of more like a fifth, more like a quarter, to everything else” could be needed, Ben Zaranko of the IFS said.
Even reversing all Mr Kwarteng’s mini-budget tax cuts would not be enough to plug the black hole, according to the think tank.
Ms Truss and Mr Kwarteng are facing calls to reverse course yet further on their mini-budget as Parliament returns on Tuesday, after already being forced to abandon plans to scrap the 45p top rate of tax.
The Prime Minister’s spokesman refused to comment on the IFS analysis, saying he would not “pre-empt” the Chancellor’s financial strategy at the end of the month.
He also said the Government remained committed to not raising any taxes.
“The Chancellor set out our position on tax and reducing the tax burden,” he said, saying the Government’s position “has not changed”.
Mr Kwarteng hopes to achieve a 2.5% “trend” rate of growth, but the IFS/Citi analysis forecast that the economy is set to grow by an average of 0.8% a year for the next five years.
At Tuesday morning’s Cabinet, Ms Truss said her Government’s growth plan “was a shared endeavour involving all departments with further work ahead of the medium-term fiscal plan”, according to a readout from the meeting.
The Prime Minister is committed to the growth measures set out by the Chancellor
But the latest emergency intervention by the Bank of England to reassure markets spooked by Mr Kwarteng’s mini-budget did not come up at Cabinet, Ms Truss’s spokesman said.
The central bank stepped in with further emergency action for the second day running to head off a “fire sale” of UK government bonds, which it said posed a “material risk to UK financial stability” after yields on long-dated gilts soared once more on Monday.
Despite the fresh intervention, Ms Truss “is committed to the growth measures set out by the Chancellor”, her spokesman said.
“The Prime Minister remains confident that the measures set out will deliver growth in the economy.”
He said the central bank’s action is “in line with its financial stability objective and we are in regular contact with the Bank, which will closely monitor markets in the coming days”.
Asked if the Bank’s intervention was discussed at Cabinet, he said: “No, it wasn’t … They talked about the growth plan and the importance of that.”
It is possible the topic came up at political Cabinet – a meeting without civil servants before the full gathering.
In a break with tradition, the Prime Minister’s spokesman does not attend Cabinet under Ms Truss.
Under her predecessor Mr Johnson, the official always attended, but has not been at either of the two Cabinets since Ms Truss took office.
Mr Kwarteng could take questions from MPs about his fiscal plans in the Commons on Tuesday afternoon.
The Prime Minister is set to hold a series of meetings with mutinous MPs this week as part of a charm offensive after a torrid conference season for the Government.
