Kwasi Kwarteng: I promise to bring spending under control

Kwasi Kwarteng - REUTERS/Toby Melville
Kwasi Kwarteng - REUTERS/Toby Melville

Kwasi Kwarteng has promised to make a new “commitment” to bring public spending under control following a week of financial turmoil.

Writing in The Telegraph, the Chancellor vows to publish a “credible” plan in November for getting debt falling that will convince the markets.

Mr Kwarteng also doubles down on his mini-Budget, saying while some measures may not be universally popular “we had no other choice”.

In Saturday’s article, the Chancellor describes a November 23 statement on the Government’s longer-term financial plans as “so important”.

He says the statement will contain a “commitment to spending discipline”.

Treasury sources declined to reveal details of the new commitment on Friday night, but it is likely to lead to cuts in some areas as inflation squeezes department budgets.

The announcement is the latest move from the Government designed to reassure the markets that the new growth agenda is not a threat to the public finances.

Chancellor - Simon Walker / HM Treasury
Chancellor - Simon Walker / HM Treasury

There was a boost for pound sterling on Friday after the Office of National Statistics revised its growth figures up, suggesting that the UK economy was not currently in a recession.

Pound sterling ended the week at more than $1.11 against the dollar, up from its record low of $1.04 on Monday and amounting to its best week since July 2020.

Meanwhile, it was announced that inflation in the eurozone hit a record 10 per cent in September, roughly in line with the UK’s latest official figure from August.

Banks also started to relaunch their mortgage ranges after pulling hundreds of deals from sale this week - though interest rates for new deals were expected to be significantly higher.

Late on Friday night, the ratings agency Standard & Poor’s revised the UK’s credit outlook to “negative”, a move which is sometimes, but not always, a prelude to a ratings cut. The UK has a AA rating, one level below the highest.

It cited “rising fiscal risks for the UK economy stemming from the sizable budgetary loosening” which was announced in the mini budget.

It said extra public spending could be needed in the wake of high inflation in order to support commitments such as the NHS. Government debt will reach 97pc of economic output by 2025, it added.

“We could lower the ratings on the UK if its fiscal performance significantly weakened further,” it warned.

In his article, Mr Kwarteng writes: “The Medium-Term Fiscal Plan will set out a credible plan to get debt falling as a share of GDP in the medium term, with new fiscal rules and a commitment to spending discipline. And this will be alongside a full forecast from the Office for Budget Responsibility.

“The British taxpayer expects their government to work as efficiently and effectively as possible, and we will deliver on that expectation. Not all the measures we announced last week will be universally popular. But we had to do something different. We had no other choice.”

The comments are the furthest Mr Kwarteng has gone to date on the need to keep public spending tightly controlled - meaning major squeezes on departmental budgets.

The lack of announcements on spending and debt in the mini-Budget, combined with £45 billion of tax cuts covered by borrowing, was cited as a reason for this week’s market turmoil.

The Telegraph understands that by “medium term”, the Chancellor means over five years. Therefore he will reveal a plan to get debt falling as a share of GDP by 2027.

Mr Kwarteng’s vow to stick by measures that may not be popular with everyone will be seen as a sign he will not reverse the abolition of the 45 per cent top rate of income tax.

On Friday, the Treasury resisted Tory pressure to commission the Office of Budget Responsibility (OBR) to publish a forecast before the fiscal statement on November 23.

Liz Truss and Mr Kwarteng met Richard Hughes, the OBR chairman. He said initial forecasts would be given to the Treasury next week, but they will not be made public.

The Treasury wants to wait until its eight supply-side reform packages are revealed and the new fiscal and spending promises announced before a full assessment is made.

Mr Kwarteng writes: “Even in the face of extreme volatility in global markets, with major currencies wrestling an incredibly strong US dollar, we will show financial markets and investors that our plan is sound, credible and will work to drive growth.”

The political situation facing the Tories as they gather for their conference on Sunday is dire. A string of opinion polls has given Labour a lead of between 20 and 33 percentage points - landslide territory.

A rebellion over the mini-Budget, and specifically on reversing the removal of the 45p tax rate, is building, with some Tory MPs said to be talking to Labour about tactics.

On Friday, Sir Charles Walker, a veteran Tory MP, predicted defeat for his party, saying: “It’s hard to construct an argument now that the Conservatives can win that general election.”

Simon Clarke, the levelling up minister, described Ms Truss as "purposeful" despite the backlash to the budget.

"She’s obviously, you know, carrying pressures, which most of us would find pretty crushing. But she’s clear in her own mind and her conscience is clear that this is the right thing to do," he told The Times.

He added: “The worst of the situation is already behind us in terms of that heightened anxiety in recent days. Do I believe that we will see things improve very markedly as we move into 2023? Yes I do.

“I don’t think that there’s anything here which can’t fundamentally be addressed by setting out a strategy that the markets have confidence in.”