Liz Truss and Kwasi Kwarteng have insisted their £45 billion package of tax cuts is the “right plan” to get the economy moving despite chaos on the financial markets and fears of rocketing mortgage bills.
In their first public comments since the pound hit a record low on Monday, neither the Prime Minister nor the Chancellor commented directly on the turmoil created by his mini-budget.
During a round of BBC local radio interviews, Ms Truss said the Government had to take “urgent action” to kick-start the economy and protect consumers from rising energy costs.
And during a visit to an engine plant in Darlington, Mr Kwarteng said the package he announced in the Commons on Friday was “absolutely essential” if the economy was to generate the revenues needed to fund public services.
However, Labour warned that ordinary families would pay the price with thousands of pounds added to mortgage bills as the Bank of England will be forced to increase interest rates to shore up the pound.
Fears among Tory MPs that the financial fallout could hurt them at the ballot box were dramatically underlined after a YouGov poll for The Times showed Labour opening up a massive 33-point lead over the Conservatives.
With reports of unease among Tory MPs after the market chaos of recent days, some have called for an urgent change of course from the Prime Minister.
Julian Smith, a former Cabinet minister, urged the Government to “take responsibility” for the crisis.
“The Government must scrap 45p, 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,” he tweeted.
Former science minister George Freeman called on the Cabinet to meet and agree a “Plan B”.
“The economic package of borrowing & tax cuts announced last week clearly can’t command market or voter confidence,” he said on Twitter.
Another MP, Sir Charles Walker, admitted that his party would likely lose an election if it was called today based on the polling, but ruled out the possibility of a leadership challenge against Ms Truss.
“We’ve made our bed, we’ve got to lie in it,” he said.
Meanwhile, Mr Kwarteng came under renewed pressure to bring forward his planned statement setting out how he intends to get the public finances back on track after the Office for Budget Responsibility (OBR) said it could produce a preliminary set of forecasts by October 7.
The Chancellor previously said he would deliver his medium-term fiscal plan explaining how he would get debt falling as a percentage of GDP, alongside the updated OBR forecasts, on November 23.
But with the absence of any forecasts to accompany Friday’s “fiscal event” seen as a key factor in spooking the markets, many Tory MPs believe that is too long to wait if they are to restore stability.
Mel Stride, the Conservative chairman of the Commons Treasury Committee, said it should be brought forward to late October – or even earlier – as there was an “urgent need” to increase the confidence of the markets.
Mr Kwarteng brushed off suggestions his mini-budget had been a “major economic disaster”, saying: “Without growth you are not going to get the public services, we are not going to generate the income and the tax revenue to pay for public services.
“That’s why the mini-budget was absolutely essential in re-setting the debate around growth and focusing us on delivering much better outcomes for our people.”
The Prime Minister told BBC Radio Leeds: “We had to take urgent action to get our economy growing, get Britain moving and also deal with inflation.
“Of course that means taking controversial and difficult decisions but I am prepared to do that.”
.@OBR_UK has just confirmed to me they’ll shortly publish timetable for producing full fiscal forecast – first iteration with @KwasiKwarteng Fri 7th Oct. Now clear from my correspondence with @OBR_UK that FULL forecast can be provided by end Oct rather than waiting til 23rd Nov.
— Mel Stride (@MelJStride) September 29, 2022
Their comments came after the Bank launched an emergency government bond-buying programme on Wednesday to prevent borrowing costs from spiralling out of control and stave off a “material risk to UK financial stability”.
It bought up to £65 billion worth of government bonds – known as gilts – at an “urgent pace” after fears over the Government’s tax-cutting plans sent the pound tumbling and sparked a sell-off in the gilts market, which left some UK pension funds teetering on the brink of collapse.
On Thursday, the pound regained some ground, rising to above 1.1 dollars for the first time since last Friday.
However, the FTSE 100 dropped around 2% to 6,864 – its lowest point since March this year, amid a global sell-off, while yields on the UK’s 10-year gilts were up to 4.14%.
Speaking in Northern Ireland, the Bank’s chief economist, Huw Pill, underlined warnings that they would have to sharply raise interest rates, noting that there was “undoubtedly a UK-specific component” to recent market movements.
His comments contrasted with Ms Truss who, in her interviews, blamed “Vladimir Putin’s war in Ukraine” for pushing up global energy prices.
For Labour, shadow chancellor Rachel Reeves called on Ms Truss and Mr Kwarteng to reverse their “kamikaze budget”.
“It is disgraceful that the family finances of people across the country are being put on the line simply so the Government can give huge unfunded tax cuts to the richest companies and those earning hundreds of thousands of pounds a year,” she said.
“This is a serious situation made in Downing Street and is the direct result of the Conservative Government’s reckless actions.”
Earlier, trade unions called for a “cast-iron guarantee” that there would be no more cuts to public spending after Treasury Chief Secretary Chris Philp confirmed Whitehall departments had been instructed to carry out an “efficiency and prioritisation exercise” in an effort to find savings.
Speaking to broadcasters, Mr Kwarteng said that despite the pressures on the public finances, the Government would maintain the state pension “triple lock” but refused to commit to uprating benefits in line with inflation.
“It’s premature for me to come to a decision on that, but we are absolutely focused on making sure that the most vulnerable in our society are protected through what could be a challenge,” he said.