Labour leader Sir Keir Starmer accused Liz Truss of being “lost in denial”, as the prime minister was jeered in the Commons for claiming she had “protected” the UK economy.
Ms Truss also claimed at PMQs that the government would not have to cut public spending – despite the market chaos sparked by the borrowing spree set out in chancellor Kwasi Kwarteng’s mini-Budget.
Asked by the Labour leader whether she would keep her Tory leadership campaign promise not to cut public spending, Ms Truss replied: “Absolutely.”
Despite fears of fresh austerity to address the black hole in public finances, the PM claimed the government would tackle debt “not by cutting public spending, but by making sure we are spending well”.
Amid negative growth, rising mortgage rates and fears for pensions, Ms Truss was jeered by Labour MP after claiming ministers were making sure “we protect our economy at this very difficult time internationally”.
Sir Keir told the Commons that Ms Truss was “lost in denial … no wonder investors have no confidence in her government”.
He added: “There is no point trying to hide it, everyone can see what has happened. The Tories went on a borrowing spree sending mortgages rates through the roof … [Homeowners] won’t forget and they won’t forgive. Nor should they.”
The Labour leader said it was time for the PM should “stop ducking responsibility” and reverse the chancellor’s “kamikaze” mini-Budget, adding: “The economy’s in turmoil.”
Ms Truss replied: “What we’re seeing is we are seeing interest rates rising globally ... they are rising globally, in the face of Putin’s appalling war in Ukraine.”
Ms Truss also endured laughter from the opposition benches when she was forced to rule out an early election.
Asked about surveys showing the majority of the public want to go to the polls, the PM replied: “The last thing we need is a general election.”
Ms Truss and Mr Kwarteng have been warned they will have to find spending cuts of more than £60bn to meet targets to get the public finances back under control by 2026-27.
The Institute for Fiscal Studies economic think tank said it was not possible to deliver reductions on that scale through mere efficiency savings – warning that it could require 15 per cent cuts to Whitehall budgets outside of the NHS.
Grilled on her pledge not to cut public spending, Ms Truss said: “What we will make sure is that over the medium-term the debt is falling. We will do that, not by cutting public spending, but by making sure we spend public money well.”
Sir Keir said to Tory MPs: “They can cheer. I hope they listened very, very carefully to that last answer because other people will have listened very, very carefully to it.”
But Downing Street later said “difficult decisions” will need to be taken “given some of the global challenges we’re facing”.
The prime minister’s official spokesperson said: "The prime minister was clear that government spending will continue to rise, but beyond that it really is for the chancellor to come forward with anything on spending which he will do on [October] 31st.”
The PM’s spokesperson refused to spell out whether Ms Truss’s pledge committed her to avoiding real-terms cuts to public spending - taking inflation into account - or simply to not cutting the cash value of plans already set out.
Inflation of around 10 per cent means that the budget allocations for the period up to 2024/25 are far less generous than expected when they were set out in the 2021 spending review, at a time when prices were thought likely to rise much more slowly.
Although budgets for hospitals, schools and other services are due to rise over the period, the IFS has calculated that an additional £18bn is needed next year simply to stand still, when inflation is taken into account.
Ms Truss is facing opposition from many of her own MPs to a proposal to make real-terms cuts to benefits. Some have told The Independent they would also fight against any cuts to frontline public services.
Earlier on Wednesday business secretary Jacob Rees-Mogg suggested that the Bank of England’s interest rates decisions – rather than the mini-Budget – was the main reason for market chaos.
But former Bank governor Sir Charlie Bean said the “original sin” of the mini-Budget’s “unfunded tax cuts” had panicked the markets, as the central bank deliberates whether to continue its emergency support for pensions beyond Friday.
Sir Charlie said the Bank may have to keep its emergency bond-buying scheme going for longer to protect pensions – despite governor Andrew Bailey’s insistence that the scheme would end on 14 October.
Despite Ms Truss’s defiance, a senior No 10 official has told The Independent that staffers have been tasked with re-examining measures unveiled in mini-Budget to see if changes or U-turns might be required.
The official said that staff “have been told to go through the measures and the OBR’s working line by line”.
Meanwhile, the Commons is to debate a 575,000-signature petition calling for an early election. The three-hour debate will be held on 17 October, and a minister will have to attend to make the case for letting the parliamentary term to continue.
