In his first public comments as prime minister, Rishi Sunak set the course for a new age of austerity with a vow not to leave a burden of debt for future generations.
Economists warned that the British public is not prepared for the scale of cutbacks and tax rises likely to be needed as the new PM fights to restore financial stability.
Unless Mr Sunak can find genuine efficiency savings in the public sector, his drive to balance the books will be experienced by voters in the form of lengthening queues for healthcare, larger classes in schools and a depleted frontline workforce, warned Gregory Thwaites of the Resolution Foundation think tank.
And campaigners warned of a fresh wave of suffering for the worst-off if Mr Sunak fails to increase benefits in line with inflation at 10.1 per cent.
Speaking outside 10 Downing Street minutes after being invited to form a government by King Charles III, Mr Sunak acknowledged that the UK is facing a "profound economic crisis” and there are "difficult decisions to come".
Drawing a firm line under Liz Truss’s approach of ramping up debt to stimulate growth, he declared: “The government I lead will not leave the next generation – your children and grandchildren – with a debt to settle that we were too weak to pay ourselves.”
His government would “fix” the mistakes of his predecessor by placing “economic stability and confidence” at the heart of its agenda, he said.
Mr Sunak’s confirmation of Jeremy Hunt at the helm of the Treasury gave the seal of approval to the chancellor’s reversal of Truss’s tax giveaways and the spending restraint he is expected to impose in next Monday’s fiscal statement.
While the PM insisted he would act with "compassion", economic experts told The Independent that he cannot achieve his goal of debt falling as a proportion of GDP without pain.
Mr Hunt is facing a gap of as much as £40bn he must fill to reassure the markets that the Sunak administration can get the public finances back on an even keel following the chaos caused by Kwasi Kwarteng’s mini-Budget.
Carl Emmerson, deputy director of the Institute for Fiscal Studies, told The Independent that even sticking to existing budgets would amount to “a hidden form of austerity”, as inflation has made them far less generous than intended when Sunak first set them out in 2021.
“Those settlements were already difficult for departments other than health and they are now facing huge pressures from rising prices and pay awards,” he said. “It’s going to be very tough for them if they have to stick to existing budgets, let alone if there are cuts.”
The only “easy win” in spending terms would be to reverse Ms Truss’s promise to boost military budgets to 3 per cent of GDP by 2030, but this would probably come at the cost of the resignation of Ben Wallace, reconfirmed as defence secretary by the new PM.
Further cuts to public services will be very visible to voters, as there is little fat to trim after a decade of austerity, said Mr Thwaites.
“The NHS is doing 12 per cent fewer procedures a year than before the pandemic and there is a backlog of millions of patients,” he said.
"Unless they can find a way of making services genuinely more efficient, this will be experienced as longer hospital waiting lists, more suicides in prison, larger classes in schools, more vacancies in the public sector and longer waits for criminal cases to come to court.
"It seems to me that the British public is not prepared for the sort of public services that would result from further cuts."
Meanwhile, Iain Porter of the anti-poverty think tank the Joseph Rowntree Foundation urged Mr Sunak to make good on his promise as chancellor to increase working-age welfare benefits in line with inflation.
The failure of previous chancellors to maintain the inflation link has already left benefit payments at their lowest for generations, with debt, foodbank use and homelessness rising and many households unable to obtain the “bare essentials”, he said.
“Families on low incomes desperately need stability and certainty, as they try to afford the essentials, pay their rent, and keep food on the table,” said Mr Porter.
“The new government must show it is as serious about protecting its citizens from harm as well as it is about calming the markets. It can do this by moving quickly to take away a huge source of anxiety for millions and confirming that benefits will be uprated as soon as possible in line with September’s inflation rate of 10.1 per cent – a position the public agree with.”
Mr Emmerson said Mr Sunak could buy himself some time by pushing back the target date for debt to reduce as a share of GDP from three to five years, at the risk of undermining his credibility with markets.
This would allow Mr Hunt to time the most painful cuts for the period after the general election expected in 2024.
Sunak could also fill around £12bn of the hole in the accounts by reinstating the 1.25 per cent national insurance hike which he introduced as chancellor in April only to see it reversed by Kwarteng last month, said Mr Thwaites.
Or he could extend his four-year freeze on income tax thresholds, which drag ever more workers into higher rates as inflation soars.
“All of this is going to be politically hard to do,” said Mr Emmerson. “In 2010, George Osborne was squeezing public services which had enjoyed quite dramatic increases in their budgets over the previous 10 years.
“There is little fat to trim now after years of austerity and a pandemic.”
