Liz Truss’s tax cut and defence spending pledges, coupled with spiralling inflation and the growing cost of government debt, will create a £60bn hole in the public finances by 2026, according to calculations by the Financial Times.
The frontrunner is expected to unveil an emergency budget, including her controversial planned tax cuts, within weeks if she is unveiled as the next prime minister on Monday.
She has also said she wants to raise spending on defence to 3 per cent of GDP.
But her plans have attracted vitriol even from former cabinet colleagues. Rishi Sunak, her rival in the race to replace Boris Johnson, has warned they could leave many vulnerable people in “destitution”. Michael Gove attacked them as a “holiday” from reality.
The newspaper says its calculations, based on the same methodology used by the Office for Budget Responsibility (OBR) also shows that an estimated £30bn of government “headroom” in March has been almost eliminated.
Ms Truss is expected to bypass the scrutiny of the OBR with her emergency budget, a move that has provoked a furious row within her own party.
The OBR has confirmed that it is already working on calculations in case it is asked to produce a forecast at short notice by the new chancellor.
But it is thought unlikely it will be called upon, despite being created by a Conservative chancellor and one of Ms Truss’s former mentors George Osborne.
Julian Jessop, a fellow at rightwing think-tank the Institute of Economic Affairs, told the FT that if the OBR produced a similar projection “it won’t make any difference” to Ms Truss’s plans. “I don’t believe we will or should be setting policy on the basis of the OBR’s three-year forecasts for the public finances,” he added.
Paul Dales, chief UK economist at Capital Economics, told the FT that tax cuts should not be permanent when the public finances were under more strain than previously predicted . “The key point is that the new prime minister should acknowledge that the situation has changed, that there is less room to cut taxes than before and that at some point either spending may need to be cut or taxes may need to rise,” he said.
