Inside Politics: ‘Material risk to UK financial stability’

Hello there, I’m Matt Mathers and welcome to The Independent’s Inside Politics newsletter.

Beware – the anti-growth coalition is out in force this morning. Its members could be selling you coffee, driving your train, teaching your children or even caring after your nan.

Chief politics commentator John Rentoul on what to look out for:

The cabinet meets this morning, with all ears tuned to whether Liz Truss will give up the idea of cutting benefits. She will join a call with G7 leaders to discuss Ukraine at 1pm. The House of Commons returns from its party conference break at 2.30pm, starting with Treasury questions. Kwasi Kwarteng, the chancellor, will then introduce the Health and Social Care Levy Repeal Bill, reversing the rise in national insurance contributions and cutting them further, which will go through all its stages in one day. Labour is not opposing it.

Both Liz Truss and Kwasi Kwarteng will this week attempt to regain control of the narrative on the economy and further flesh out their “plan for growth”. There are, however, two stories to report this morning that spell bad news for No 10 and 11 Downing Street, ministers in charge of government departments and by extension just about every other person in the country.

The first comes in the form of new analysis by the respected Institute for Fiscal Studies think thank, which tells the chancellor that he will need to U-turn on his tax giveaways or have to implement “big and painful” spending cuts if he is to put the country’s finances back on a sustainable path.

The IFS predicts that the UK will be in recession until 2024 (the prime minister and Kwarteng have set themselves a target of 2.5 per cent growth by then). Due to a weaker economy and less money in the Treasury coffers because of said tax cuts, the IFS calculates the government would have to spend £60bn a year less by 2026-27. It also warned that government departments would have to find cuts of around 15 per cent if funding for the NHS and defence was ring-fenced.

The Treasury, which is, along with No 10, apparently in “listening mode”, said its tax cuts and reforms would deliver “sustainable funding for public services”. The problem is that we still do not have a clear idea of what these reforms look like, although the chancellor did try to partly address this issue by bringing forward the date on which he said he would publish his media-term fiscal – his third U-turn on the matter.

The second story, which makes the front of the Financial Times, is that the cost of government borrowing soared again yesterday after a sell-off in UK gilts, as the Bank of England prepares to wrap up its intervention in the market on Friday. The BoE has been spooked enough by the development to issue another statement within the past hour saying it will further bolster its emergency bond-buying plan as it warned an ongoing rout in the gilts market poses a “material risk to UK financial stability”.

“These additional operations will act as a further backstop to restore orderly market conditions by temporarily absorbing selling of index-linked gilts in excess of market intermediation capacity, the BoE. “As with the conventional gilt purchase operations, these additional index-linked gilt purchases will be time-limited and fully indemnified by HM Treasury.”

I did warn you the anti-growth coalition is out in force today.

MPs will vote on Truss’s pledge to reverse the rise in national insurance contributions today, which will pass with help from the Labour Party, as my colleague John Rentoul noted above. The opposition will, however, ramp up its efforts calling on the government to undo just about every other aspect of Kwarteng’s “disastrous” financial statement – which included a cut to corporation tax.

“This is a Tory crisis that has been made in Downing Street, and that is being paid for by working people,” Rachel Reeves, the shadow chancellor, said. “Families worried sick about bills haven’t even had so much as an apology from the prime minister or chancellor, the architects of chaos unleashed on the British economy and family finances.”

In other Labour news Sam Tarry, the former frontbencher sacked for freelancing on party policy while out on a picket line during rail strikes, has been deselected as Labour’s candidate in the London constituency of Ilford South. Following weeks of campaigning in the safe Labour seat, Tarry failed to see off a challenge from the leader of Redbridge council, Jas Athwal. He will go forward as the party’s candidate at the next general election.

“Ilford is my home, it is where I live, went to school and where my children all went to school,” Athwal said following the win. “It is the only place I would ever want to represent. The opportunity to be the Labour candidate at the next election and be part of Keir Starmer’s winning team is a real honour.”

Paul Johnson, director of the Institute for Fiscal Studies, on chancellor’s economic plans.

“The chancellor should not rely on over-optimistic growth forecasts or promises of unspecified spending cuts. To do so would risk his plans lacking the credibility which recent events have shown to be so important.”

Alicia Kennedy, director of Generation Rent UK, on reports that Truss is planning to scrap no-fault evictions.

“Totally flabbergasted. The @Conservatives commitment to abolish evictions for no reason was made after a consultation, at a General Election, confirmed by 2 Prime Ministers at 3 Queen’s Speeches – if this is true it is shameful. @genrentuk”.

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Source: UK Politics - www.independent.co.uk