Liz Truss has pledged not to cut public spending to balance the books in her first PMQs since the chancellor’s contentious mini-budget – despite a leading economics-focused think tank warning the government is billions short of the sums needed.
The prime minister insisted she was “absolutely” not planning public spending reductions, but vowed that taxpayers’ money would be used well.
It comes as cabinet minister Jacob Rees-Mogg suggested that Chancellor Kwasi Kwarteng could ignore potential forecasts of low growth and rising debt in order to press ahead with his plans.
Ministers continue to be under pressure for the market turmoil that erupted after the government announced its £45bn package of unfunded tax cuts last month.
Mel Stride, the Chair of the Treasury Select Committee, told Sky News on Wednesday that Mr Kwarteng should not take the reversal of some of his tax cuts “off the table”.
The senior Tory MP said that “holding the line” on the measures announced in his mini-budget will be even more difficult following Ms Truss’ comments on public spending, and that 31 October – the date the chancellor’s debt-cutting plan will be published – is a moment for a “reset”.
He told political editor Beth Rigby: “(Chancellor Kwarteng) has to be so careful that he doesn’t take any chances, he has to be sure the markets are going to like what they hear, that’s why I think rowing back on the tax cuts have to remain on the table.
“It’s extraordinarily important that whatever the chancellor comes forward with on the 31st, that it cuts it with the market.
“If there is any doubt in his mind about anything he is doing, he would do well to think again, he has got to play it ultra safe.”
Economists have suggested that to gain a grip on the national finances, the government will have to make spending cuts or tax rises worth tens of billions of pounds.
The “Green Budget”, from the Institute for Fiscal Studies (IFS) and Citi, the investment bank, warned this week that the chancellor would have to cut spending or raise taxes by £62bn if he is to stabilise or reduce the national debt, as he has repeatedly promised in recent weeks.
That shortfall is a direct consequence of the measures announced since the Truss government took office, which include its reversal of various tax increases such as corporation tax and national insurance and its energy price guarantee.
In another sign of pressure building on the government, Damian Green, a former deputy prime minister, said Tory MPs are openly discussing reversing some of the mini-budget measures.
“It is indeed a topic of conversation around the tea rooms of the House of Commons as well, because we can all do the rough maths and see that it’s very difficult,” he told BBC Radio 4’s PM programme.
“One of the obvious ways would be possibly to defer some of the tax cuts or the failure to put taxes up”.
In a bid to win over mutinous MPs, Ms Truss on Wednesday evening addressed the Tory backbench 1922 Committee, including some prominent critics of her strategy, former cabinet ministers Michael Gove and Grant Shapps.
She told them that small businesses would have faced “devastation” if the government had not acted to cap energy prices, aides said, but it seems unlikely her appearance significantly calmed the mood.
Tory MPs present at the meeting have confirmed to Sky News reports that Robert Halfon, chair of the education select committee, accused the prime minister of “trashing workers’ conservatism” and “everything the party has stood for over the last decade”.
The cost of government spending increased on Wednesday, with the pound falling against the dollar.
At PMQs, Sir Keir Starmer reminded Ms Truss that during her leadership campaign over the summer she had pledged: “I’m not planning public spending reductions.”
Asked if she was going to stick to that, the prime minister replied: “Absolutely… We are spending almost £1tn of public spending. We were spending £700bn back in 2010.
“What we will make sure is that over the medium term the debt is falling. But we will do that not by cutting public spending but by making sure we spend public money well.”
The Labour leader once again called for the government to reverse their “kamikaze budget”, warning Conservative MPs that voters will not forgive their party if they “defend” it.
Sir Keir also accused the prime minister of “ducking responsibility” for the consequences of her government’s economic policies and of being “lost in denial”.
Ms Truss’s commitment not to cut public spending will mean Mr Kwarteng will need to show how else he intends to get the nation’s finances under control when he presents his medium-term plan to MPs on October 31.
The strategy will be accompanied by economic forecasts by the Office for Budget Responsibility (OBR).
A lack of such forecasts during last month’s budget are thought to have contributed to the recent chaos in financial markets.
Government ‘could ignore OBR forecasts’
However on Wednesday night, Business Secretary Jacob Rees-Mogg questioned the OBR’s record and suggested Mr Kwarteng does not have to listen to potential forecasts of low growth and rising debt.
In a pre-recorded interview on ITV’s Peston, the cabinet minister said the OBR’s record of forecasting accurately “hasn’t been enormously good” and it is not the “only organisation that is able to give forecasts”.
He said: “The job of chancellors is to make decisions in the round rather than to assume that there is any individual forecaster who will hit the nail on the head.
“There are other sources of information.”
His comments were rejected by the director of the IFS, Paul Johnson, who said “of course (OBR forecasts) matter”.
He told ITV’s Peston: “It’s really important for, again, credibility which has become so important over the last few weeks, that we have these official forecasts and the Chancellor responds to that by saying: ‘This is how I see my fiscal policy’.”