Benefits hit as Liz Truss tries to stem the mini-Budget bleeding

Benefits payments are set to fall in real terms under government plans to reassure the City that it will control spending.

Efforts to calm the markets in the wake of the mini-Budget came as a new poll showed Labour had a 33-point lead over the Conservatives – believed to be the biggest for any party since the late 1990s.

On Thursday, Liz Truss and Kwasi Kwarteng used interviews to insist they would not ditch any element of their tax-slashing announcements, made last Friday, after a week in which the pound fell to record lows and interest rates soared.

Instead, they made it clear that a squeeze on government departments was coming, with public spending remaining at levels agreed last year despite inflation eating into those budgets.

Ministers were warned that spending cuts not seen since George Osborne’s austerity drive in the wake of the 2008-09 financial crisis would be needed to balance the books.

Mr Kwarteng, the Chancellor, refused to promise that benefits would rise in line with inflation – which could exceed 10 per cent – saying such a decision would be “premature”. There was speculation on Thursday night that a rise in line with average earnings, 5.4 per cent, was more likely.

More than four million people receive Universal Credit. The Resolution Foundation think tank said some working families could be £1,000 a year worse off if benefits do not rise with average prices.

However, ministers did move to reassure pensioners that the “triple lock” remains, meaning state pensions will rise in line with inflation despite the wider spending squeeze.

Ms Truss and Mr Kwarteng will on Friday hold talks with the Office for Budget Responsibility amid criticism over failing to ask the fiscal watchdog to release a forecast alongside the mini-Budget.

Ms Truss, breaking days of public silence with a string of interviews, insisted the tax-slashing plan for growth revealed last week remained the “right” approach.

The Prime Minister confirmed that government departments were being asked to find efficiencies but declined to name the areas facing cuts, instead stressing that she wanted to protect frontline services.

She said: “It’s delivering for people on police, delivering for people on doctors, delivering for people on building roads. That is the core duty of government, and that will be our focus.”

On Thursday night, concerns were emerging in government about projects and spending pots that could now be at risk.

There are doubts about whether the defence budget will increase in the coming years, with Ms Truss’s promise to hit three per cent of GDP only needing to be achieved by 2030.

A source involved in planning a post-Brexit replacement for Horizon, the EU’s science programme, expressed fears that it could be scaled back. A former minister suggested the Treasury would want “big ticket items that can immediately deliver savings” to show it was balancing the books.

Meanwhile, council leaders warned that they may have to cut back spending on leisure centres, road repairs, children’s services and adult social care unless they were allowed to raise taxes.

Earlier this week, Nick Macpherson, a former Treasury permanent secretary, warned that public sector pay cuts could be worse than at the start of the Great Depression in 1931.

A Tory rebellion is starting to emerge, attempting to force the abandonment of the decision to axe the 45 per cent top rate of income tax.

Julian Smith, the former Tory chief whip, became the latest MP to publicly call for the cut to be shelved, writing on Twitter that the Government should “take responsibility for the link between last Friday and the impact on people’s mortgages and make clear that it will do everything possible to stabilise markets and protect public services”.

Amid the disquiet, Conservative HQ sent out a memo to MPs on Thursday with lines to use in defence of the Government, including that it was taking a “responsible and realistic approach”.

Mr Kwarteng also texted backbenchers, telling them: “I understand your concern” and adding that “we are working at pace to align our spending policy to show the markets there is a clear plan”.

Ms Truss repeatedly defended last Friday’s announcements during her local media round, telling BBC Radio Norfolk: “This is the right plan that we have set out.”

She pointed to turmoil on financial markets across the world and gave no indication that any element of the mini-Budget would be reversed despite the financial fallout.

On Thursday night, it emerged the Office for Budget Responsibility had offered to produce an assessment of Friday’s growth plan but the Treasury declined to commission it.

Ms Truss and the Chancellor will on Friday meet with the OBR amid criticism over failing to ask it to release a forecast alongside the mini-Budget.

Mel Stride, the Tory chairman of the Treasury select committee, on Thursday called for the OBR to be commissioned to publish a forecast earlier than Nov 23, when its next forecast is due and said Mr Kwarteng had declined an offer to move forward his next appearance before the committee.

The scale of the political damage done to the Conservatives on the eve of their annual conference, which begins on Sunday, was beginning to become apparent.

A YouGov survey put Labour on 54 per cent of the vote – more than all the other parties combined. The Conservatives were on 21 per cent.

Four other pollsters found big Labour leads. People Polling, for GB News, put the party 30 points ahead, with Survation recording a 21-point advantage, Deltapoll 19 points and Redfield & Wilton 17.

Charities that support the poor and disabled said refusing to raise benefits by the rate of inflation would be “morally indefensible” and plunge families into “financial chaos”.

It would see people on Universal Credit, Jobseeker’s Allowance, Employment and Support Allowance and Income Support face huge real-terms cuts to their income.

Alison Garnham, the chief executive of the Child Poverty Action Group, said children “are already going hungry as costs soar” and face becoming “the casualties of a collapsing economy”, adding: “Struggling families will not forgive a Chancellor who comes to them for efficiency savings when their cupboards are already bare.”

The Joseph Rowntree Foundation, a leading charity tackling poverty, said it was “shocking” that the Government had not committed to match rising prices.

“Many people across the UK will agree it is morally indefensible that the Prime Minister would choose to give tax cuts to the richest funded on the backs of the poorest in our society,” said Iain Porter, its senior policy adviser.

“Those who will lose out if the Government continues down this track include people with low earnings, families with children, carers and people who are sick or disabled.”

There were also fears over the impact of the spending squeeze on local services.

Cllr James Jamieson, the Conservative chairman of the Local Government Association, said: “Unless there is an opportunity to raise income either through council tax, business rates or government funding closer to the rate of inflation and deferring some of the additional burdens government is placing on councils, there will have to be severe cuts next year.

“Those cuts will have to start before next year, because you can’t do them overnight on April 1. That will mean that we will be reducing our services that everybody sees. That may be a leisure centre, that may be less fixing of roads.

“But we will also have to reduce the services to some of the most vulnerable because they represent the biggest cost factor.”