Britain should prepare for a new era of austerity, Liz Truss ally warns
One of Liz Truss‘ key allies said Britain has been living in a ‘fool’s paradise’ and should prepare for austerity, as the Prime Minister stood by Chancellor Kwasi Kwarteng’s mini-budget despite its ‘disruption’ to the markets.
Ms Truss made it clear she has no intention of back-tracking on the government’s £45 billion worth of tax cuts, despite a new poll showing half of 2019 Tory voters have abandoned the party.
While Simon Clarke, the levelling-up secretary, spoke of trimming the fat as he expressed his worry over how the ‘extremely large’ state will align with a lower tax economy.
He told The Times: ‘My big concern in politics is that western Europe is just living in a fool’s paradise whereby we can be ever less productive relative to our peers, and yet still enjoy a very large welfare state and persist in thinking that the two are somehow compatible over the medium to long term.
He added: ‘I do think it’s very hard to cut taxes if you don’t have the commensurate profile of spending and the supply side reform.’
Ms Truss and her government have been attempting to reassure the markets and their own MPs after the pound fell to a record low this week and the Bank of England was forced to make a £65 billion intervention in the bond market.
Following the market chaos, Labour took a previously unthinkable 33-point lead over the Tories in the polls, alarming many Conservative MPs.
A poll from The i revealed that almost half of all Conservatives voters in 2019 have now abandoned the party.
Only 54 per cent said they are still a supporter of the party, 15 per cent admitted to switching to Labour and just one in five approve of the ‘mini-Budget’ overall.
A YouGov poll showed that half of all Britons (51 per cent) think Liz Truss should resign, including more than one-third (36 per cent) of 2019 Tory voters.
The poll of 2019 Tory voters found that Liz Truss was just the slightly more popular option to be Prime Minister than Keir Starmer – and that Boris Johnson is the best candidate.
Prime Minister Liz Truss stuck by her decision to introduce tax cuts ahead of a ‘difficult winter’, as a key ally warned the welfare state will need to be trimmed
Simon Clarke, Secretary of State for Levelling Up, warned that Britain should prepare for a new era of austerity
A poll from The i revealed that almost half of all Conservatives voters who supported Boris Johnson in 2019 have now abandoned the party
The Bank of England was forced to spend billions buying up government debt to prevent a collapse of the pensions industry following the mini-budget
On Friday Ms Truss said: ‘I recognise there has been disruption but it was really, really important we were able to get help to families as soon as possible.
‘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 Mr Kwarteng’s £45 billion package of unfunded tax cuts – the biggest in 50 years – while committing billions to capping energy bills for the next two years.
Despite having been in Downing Street for less than a month, some have questioned whether Ms Truss can survive to the end of the year as the party has seen its reputation on the economy shredded.
The Prime Minister insisted Mr Kwarteng was right to cut taxes as part of their plan to drive up the UK’s sluggish rate of economic growth
The Prime Minister, however, insisted that Mr 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, the Prime Minister 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.
Ms 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.’
While 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.
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
Mr 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 November 23.
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 the Prime Minister and the Chancellor, the head of the OBR, Richard Hughes, confirmed they would deliver their preliminary forecasts to the Treasury at the end of next week.
However, Mr Kwarteng has made clear that he wants to stick to the November 23 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 Mr 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.’