Chancellor Kwasi Kwarteng faced a grilling from MPs after the Bank of England was forced to step up its emergency intervention to prevent a market dysfunction posing a “material risk to UK financial stability”.
It came as experts warned that Liz Truss and Mr Kwarteng will be forced to impose a “savage” £60bn austerity hit unless they reverse more of their tax cuts.
Britain is heading for recession until 2024 and the chancellor will be forced to either abandon his mini-Budget giveaways or cut public services by some 15 per cent, the Institute for Fiscal Studies (IFS) said.
And Tory MPs returning to the Commons on Tuesday afternoon warned there would be strong opposition to the latter option, with one former minister tellingThe Independent: “There is no way Tory MPs are going to stomach savage austerity in a post-Covid cost of living crisis. Liz has driven herself into a cul-de-sac.”
Revealing that Cabinet had not discussed the Bank’s intervention at this morning’s meeting, Ms Truss’s official spokesperson vowed the PM would not usher in a return to austerity.
Mini-Budget a ‘British crisis made in No 10’, says shadow chancellor
Labour’s shadow chancellor Rachel Reeves described events since Kwasi Kwarteng’s mini-Budget as a “British crisis made in Downing Street”.
Ms Reeves told MPs: “Since the chancellor’s disastrous mini-budget just 18 days ago, we’ve seen wild swings in the value of the pound, gilt yields up 100 basis points in a single day and the Bank of England stepping in because, in their words, of a material risk to UK financial stability.
“And the IMF has now said that UK growth is to slow further next year. This is a British crisis made in Downing Street. No other government is sabotaging their own country’s economic credibility as this government is. So can I ask – are the chancellor and the prime minister the last people left on earth who actually think that their plan is working?”
Ms Reeves claimed that Mr Kwarteng was in a “dangerous state of denial” after he replied: “The IMF said today that actually the plan, the mini-Budget has increased the forecast for growth.”
He added: “It’s very clear where we stand on this, we’ve got pro-growth, pro-enterprise, pro-business Conservatives on one side and the anti-growth coalition on the other side who want to tax more and want to commit us to low growth.”
Plans to cut affordable homes threaten to make countryside ‘millionaires’ playground’
Government plans to slash requirements on developers to build affordable homes will be “devastating” to rural communities where young people already struggle to find places to live, campaigners have warned.
The proposals being considered by housing secretary Simon Clarke would “turbocharge the conversion of the countryside into a millionaires’ playground of second homes and weekend retreats”, said the CPRE countryside charity.
Our political editor Andrew Woodcock has the full report:
Plans to cut affordable homes threaten to make countryside ‘millionaires’ playground’
Review could cut by 20 per cent number of cheaper homes developers must build
Laughter as Kwarteng says he is ‘obviously carefuly’ about ‘unfunded spending commitments’
Kwasi Kwarteng has drawn laughter in the Commons as he claimed – with a straight face and slight turn to Tory MPs on the benches behind him – with a comment about “unfunded spending commitments”.
The chancellor was urged by Conservative MP Guy Opperman to launch a government mail-out campaign on how to reduce energy consumption in all public buildings.
Mr Kwarteng responded that it was “an excellent suggestion”, adding: “Obviously I’m very careful not to make unfunded spending commitments on the floor of the House, but his suggestion is a very well made one which we should look into.”
Boris Johnson sets up private company
Away from the Commons for a moment, our political correspondent Adam Forrest reports that Boris Johnson has set up a new private company to support him in his work outside parliament as a former PM.
The Office of Boris Johnson Limited was incorporated on Companies House on Monday, with the ex-Tory leader listed under his full name of Alexander Boris de Pfeffel Johnson.
A spokesman for Mr Johnson said: “The Office of Boris Johnson Limited will support Boris Johnson’s private office in line with similar structures established by former prime ministers.”
The private limited company will not undertake commercial activities and will solely support him in his function as a former prime minister, according to a source.
Kwarteng warned he could spook markets if Halloween plan fails in Commons
The Conservative chair of the Commons Treasury committee, has warned that Kwasi Kwarteng should only announce measurse in his Halloween fiscal plan if he is “absolutely certain” that he will be able to get them through the Commons, warning that “any failure to do do will unsettle the markets”.
Mr Kwarteng replied that Mel Stride was “absolutely right” and was doing a “brilliant job” at chairing the committee, saying that Mr Stride – who has spoken out against his mini-Budget in recent days – as being “full of wise counsel”.
He is “absolutely right that we will and should canvas opinion widely ahead of the publication of the plan”, Mr Kwarteng said.
Kwarteng quizzed over pressures to public sector pension pay due to mini-Budget
Warning that the Bank of England has intervened “three times now” with the impact on pension funds “obviously very, very significant”, Labour MP Stephen Doughty said many of his constituents were “deeply worried”.
He asked Kwasi Kwarteng what assessments he had made of the impact of potential additional pressures on the economy in the future on public sector pension pay because of the damage to pension funds, and pondered whether that was one reason the chancellor did not publicise OBR forecasts?
Mr Kwarteng replied: “The OBR will be fully scoring and giving a forecast ahead of the medium-term fiscal plan [due on Halloween]. In relation to the Bank of England, I speak to the governor very frequently, and he is someone who is absolutely independent and is actually managing what is a global situation very effectively.”
Minister asked how he can justify removing cap on bankers’ bonuses
The City minister has said a Labour MP has “truly booked her place as a member of the anti-growth coalition” after she asked how the government could justify removing a cap on bankers’ bonuses, but not the “cruel” household social security cap.
In a question to ministers, Marsha de Cordova asked what assessment the government has made of the potential effect of removing the cap on banker’s bonuses on the distribution of wealth.
Minister Andrew Griffith replied that, in 1979, the top 1 per cent of earners paid around 10 per cent of income tax, and now pay nearly three times as much.
Minister says interest rates rising ‘in every major western economy’
A minister has failed to answer how much more government borrowing would cost in 2023 as a result of rising gilt yields.
As MPs returned to parliament from conference recess, shadow Treasury minister Pat McFadden told the Commons: “This morning, the Bank of England made a further intervention in the markets, warning of and I quote, a ‘material risk to UK financial stability’.”
Saying the risk came “directly from the chancellor’s mini-Budget”, Mr McFadden asked how much more government borrowing will cost next year as a result of the economic turmoil.
Treasury minister Andrew Griffith replied that interest rates were rising “in every major western economy”, saying: “Perhaps the opposition front benches when they are finished with their British exceptionalism will actually lift their eyes and notice that?”
Mr Griffith added the government was “protecting consumers and households through the difficult winter months ahead”.
Minister claims striking workers are ‘bringing economy to a halt’
A Labour MP has urged the Conservatives to “apologise for the chaos” that Kwasi Kwarteng’s mini-Budget has caused in gilt markets, accusing the government of effectively slapping a “Tory premium” on every interest rate rise for every borrower in this country.
Addressing MPs,Angela Eagle warned that those impacted “are not going to forget it when the election comes”.
City minister Andrew Griffith retorted there was “a very clear divide in this House between our side which is supporting growth, providing support for energy bills, giving the economy the confidence and certainty it needs this winter and bringing forwards supply side measures that’s going to boost the economy.
This contrasted with the opposition, who the minister said were “on the side of striking workers bringing this economy to a halt”.
Bank of England should extend emergency action, says pensions industry body
The Bank of England’s emergency action may need to be extended beyond the end of this week to help manage market turmoil, according to a pensions industry body.
The Pensions and Lifetime Savings Association (PLSA) said a “key concern” of pension funds was that the bond-buying scheme should not be ended too soon.
The PLSA – which represents pension schemes providing a retirement income to more than 30 million savers – suggested the emergency action should continue until at least the end of October.
Our political correspondent Adam Forrest has the report:
Bank of England should extend emergency action, says pensions industry body
The Bank of England’s emergency action may need to be extended beyond the end of this week to help manage market turmoil, according to a pensions industry body.
