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LAST UPDATE | 1 Oct 2022
UK CHANCELLOR KWASI Kwarteng is facing a call for urgent talks with the devolved administrations amid warnings their vital public services are at risk in the wake of the financial turmoil unleashed by his mini-budget
The deputy first minster of Scotland John Swinney and the finance ministers of Wales and Northern Ireland – Rebecca Evans and Conor Murphy – accused the Chancellor of taking a “huge gamble” with the public finances with his £45 billion (€51 billion) package of tax cuts.
In a joint letter they said that with soaring inflation eroding the value of the devolved budget settlements announced last year, they urgently needed additional funding from the Government in Westminster.
It comes after Kwarteng defended his mini-budget, saying that the Government “had no other choice” than to do “something different” to spark the economy.
As Prime Minister Liz Truss admitted the strategy had caused “disruption”, Kwarteng said the public expected public spending would be tightly controlled.
“The British taxpayer expects their government to work as efficiently and effectively as possible, and we will deliver on that expectation,” he wrote in The Daily Telegraph.
“Not all the measures we announced last week will be universally popular. But we had to do something different. We had no other choice.”
Kwarteng also insisted he will produce a “credible plan” to get the public finances back on track with a “commitment to spending discipline”.
Devolved concerns
In their letter to Kwarteng, Swinney, Evans and Murphy said:
“Our budgets are already stretched beyond the maximum and as responsible governments we are having to make very difficult decisions to balance our budgets, as we do not have the flexibility or borrowing powers that the UK Government has.
“This approach is unlikely to be sustainable and is putting services at risk.
The UK Government has taken a huge gamble on the public finances and the health of our economy. Even prior to last Friday, the UK, like many other countries, was already facing the most severe economic upheaval in a generation.
“However, the UK Government has chosen to make things significantly worse by announcing a huge package of tax cuts for the most wealthy without any credible explanation of how these will be paid for.”
Tory conference
As Tories prepared to head to Birmingham for their annual conference, Truss warned the country faced a “difficult winter” ahead as she indicated she had no plans to reverse her tax-cutting agenda.
“I recognise there has been disruption but it was really, really important we were able to get help to families as soon as possible,” the PM said in a pooled interview with broadcasters yesterday.
“This is going to be a difficult winter and I am determined to do all I can to help families and help the economy at this time.”
Her comments came at the end of a tumultuous week which saw the pound slump to an all-time low against the dollar and the Bank of England forced to spend billions buying up government debt to prevent a collapse of the pensions industry.
The sell-off of sterling prompted fears that millions of mortgage holders could face crippling rises in their repayments as the Bank moves to ratchet up interest rates to shore up the currency and put a lid on inflation.
The turmoil erupted after markets took fright at Kwarteng’s £45 billion (€51 billion) package of unfunded tax cuts – the biggest in 50 years – while committing billions to capping energy bills for the next two years.
With the Tories tanking in the opinion polls – one showed Labour opening up a hitherto unthinkable 33-point lead – some Conservative MPs have been pressing for a change of course.
Despite having been in Downing Street for less than a month, some have questioned whether Truss can now survive to the end of the year as the party has seen its reputation on the economy shredded.
The Prime Minister, however, insisted that Kwarteng was right to cut taxes as part of their plan to drive up the UK’s sluggish rate of economic growth.
“What is important to me is that we get Britain’s economy back on track, that we keep taxes low, that we encourage investment into our country and that we get through these difficult times,” she said.
With some analysts warning of a squeeze on public spending to get debt under control, Truss again refused to commit to the annual uprating of benefits in line with inflation – something Rishi Sunak had promised to do when he was chancellor.
Pressed in her interview, Truss said only that it was “something the Work and Pensions Secretary (Chloe Smith) is looking at”.
She added: “What is important to me is that we are fair in the decisions we make, but most importantly that we help families and businesses at this very difficult time with their energy prices.”
A key ally of the Prime Minister, Levelling Up Secretary Simon Clarke, however, went further suggesting the Government was looking to shrink the overall size of the state.
“I think it is important that we look at a state which is extremely large, and look at how we can make sure that it is in full alignment with a lower tax economy,” he told The Times.
Kwarteng is due to publish a medium-term fiscal plan setting out how he intends to get debt falling as a proportion of GDP alongside an updated set of economic forecasts from the Office for Budget Responsibility (OBR) on 23 November.
The absence of new projections from the independent OBR was seen as one of the key reasons why the markets reacted so badly to the Chancellor’s mini-budget.
Some Tory MPs have been pressing him to bring forward the date of publication so as to restore market confidence in the Government.
After a highly unusual meeting on Friday with both Truss and Kwarteng, the head of the OBR, Richard Hughes, confirmed they would deliver their preliminary forecasts to the Treasury at the end of next week.
However, Kwarteng has made clear that he wants to stick to the 23 November date to allow ministers to set out a series of supply side reforms to support the growth plan.
They include changes to the financial sector regulations, immigration and the planning rules, with Clarke hinting they could include changes to the green belt.
“The fact the green belt is larger today than it was when Margaret Thatcher came to power is an extraordinary state of affairs,” he said.
“We need to look at a planning system where we make sensible adjustments which don’t threaten communities and most fundamentally are about going with popular consent, and actually creating incentives that allow local areas to back growth.”
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“No choice but to do something different!!”
That sounds like a well thought out plan…….
I actually don’t see how it could possibly work… could Truss be gone before Christmas. ?? Revolving door for Pm’s in no 10
@Kevin Conway: and then Boris will be back!!!
@Ronnie Smith: it would be hilarious (in a mad sort of way) if Mogg was forced to take it.
Unfunded tax cuts and capping energy bills are a bad idea. Brexit was a bad idea. Unfortunately the UK has gone down the rabbit hole where Brexit is the elephant on the room that can’t be blamed and those pushing these terribly bad ideas are being promoted to the corridors of power.
The UK economy is seriously troubled now. Some points to bear in mind:
Double digit inflation.
Current account defecit was 3% of GDP, tanking currency has pushed that to 9% which means they will be importing more inflation.
Bank of England have to raise rates to tackle inflation but now are also pumping liquidity into the system to tackle the bond crisis.
The government needs to raise 70bn to cover price caps and, is reducing the tax take by 45bn at the same time.
UK gilts are not attractive now so the cost of borrowing on this will go through the roof.
Government debt repayments will rise whilst taxation take will fall.
It’s nuts.
@Lee King Buckett: It looks like asset stripping to me. Nothing else makes sense.
@Steve O’Hara-Smith: You could be right. Personally I think it’s more of an attempt to roll back further on the welfare state – driven by the thinking that ‘poor people are lazy, they deserve nothing and if that’s what they have, then they might get a job’. In 2012, Kwarteng, Truss, Rees-Mogg and Patel Co-authored a book called Britannia Unchained, where they laid out their vision for a prosperous UK – it’s probably worth a read in the current climate.
Regardless, whether you’re right or I am (possibly both?) one thing is for certain, it wasn’t an accidental decision – there’s something behind it…
@Lee King Buckett: in some ways if they were actually asset stripping you could at least say there was some logic to what they are doing- rotten horrible logic but logic nonetheless. If it’s purely ideological then it’s doubly nuts. That they really believe their actions will work- and that they think this is a good time for such radical actions
I like these guys their tumultuous fresh thinking out the box , bit like have a slow puncture in your lifeboat in deep sea rough weather middle of nowhere And the solution burst another bigger hole beside it Genius I mean who does that frigin marvoless
Commitment to spending discipline = austerity.
@Mike Osullivan: Yes, that’s my thinking too – debt to be repaid, no tax increases allowed so the only other way to fund it is by cutting social spending.
They are so screwed
The mind boggles. Every decision the Tory party has made during their tenure has been nothing short of disastrous. Yet the opposition cannot seem to capitalise on this. Labour won’t even utter the word Brexit yet it’s the obvious elephant in the room. They’ve equated the word with not saying Voldemort…. Despite all of this if you read the comments coming out of the UK the majority of voters refuse to contemplate a Labour government. Saying that the market reaction to Truss’s budget is mere hysteria and that she has a “plan”. There’s a collective denial here across the UK. They just can’t admit they were wrong. Is it arrogance or ignorance???
@Skipper Mac: Labour have opened a 33 point lead in polls earlier this week.
I don’t think its a Brexit issue politically anymore (economically maybe, but that’s a point for another day) the issue is that the working class poor were convinced by the Brexiteers that the only reason they were poor is because the Nasty EU were allowing Johnny foreigner to take all their money and houses.
They fell for it and, let’s not forget, an awful lot of them voted for Boris for those reasons. Of course, now they are realising that the problem was never Johnny foreigner at all, it was successive government policies which add up to make the UK one of the most unequal developed economies on earth.
If you look at income distribution levels and strip out the top 5% of British society, they actually resemble a poor country with a small proportion of very rich people living there.
Some Tory MPs are joining Labour in an effort to rebel against the budget, going to be an interesting watch.
Car crash stuff.
A quote from a Boris lock down party.
“Right to act”? But the act seems wrong! Seems to have made things worse! Even the IMF released a statement on it, without first informing the govt that they were going to release said statement! That’s quite unprecedented as far as I’m aware.
have your say