Kwasi Kwarteng has brought forward the date of his debt-cutting plan to 31 October after pressure from MPs over the unfunded tax and spending promises announced in last month’s mini-budget. The chancellor told the Commons Treasury committee that he would use the new date to announce his “medium-term fiscal plan”, alongside the release of fresh forecasts for the economy and public finances from the Office for Budget Responsibility (OBR). The decision to rush forward the announcement to Halloween leaves the chancellor with three weeks to find ways to balance the books after promising more than £40bn of unfunded tax giveaways last month.
Kwarteng had planned an update on 23 November alongside the release of OBR forecasts in an attempt to quell turmoil in financial markets and a rebellion among backbench Conservative MPs after he sidelined the Treasury watchdog for last month’s mini-budget. It comes amid heightened tension at the heart of government over Liz Truss’s plans to balance the books after the mini-budget. The prime minister has faced the threat of another rebellion over a potential sub-inflation increase for benefits, after being forced into a U-turn over plans to abolish the 45p rate of income tax for Britain’s highest earners. Kwarteng’s move to bring forward a second set-piece in as many months comes after the pound crashed to the lowest level to date against the dollar and UK government borrowing costs soared in the wake of his tax-cutting plans. The chancellor has faced calls to publish OBR forecasts at the earliest possible opportunity to show commitment to sustainable finances, although he had previously hoped to hold out until late November. In a letter to the Treasury committee chair, Mel Stride, Kwarteng said he hoped the “short extra delay” in the release of OBR forecasts would be acceptable. “It will allow for a full forecast process to take place to a standard that satisfies the legal requirements of the charter for budget responsibility enacted by parliament and that also provides an in-depth assessment of the economy and public finances. And it will provide time for the medium-term fiscal plan to be finalised,” he said. The government is widely expected to push for reductions in public sector spending to help balance the books while prioritising tax cuts Truss says are vital for growing the economy. The government has set a 2.5% growth rate target for GDP, arguing that stronger growth could help to cover the cost of tax cuts while funding public services. However, City economists have warned the plans to shield families from soaring energy bills and prioritise tax cuts for higher earners are unlikely to have a significant impact on growth, and could risk fuelling persistently high inflation. Analysts have said the Bank of England could be forced to drastically increase interest rates to mop up the inflationary burst, as well as offset the impact from the fall in the pound after the mini-budget. Weakness in sterling can add to inflation by driving up the cost of imported goods. Bringing forward the date of the chancellor’s fiscal event will, however, help to inform the central bank’s next decision on interest rates, due on 3 November. It comes as Kwarteng scrambles to find ways to fill a black hole in the government finances left by his unfunded tax promises and a wider deterioration in economic activity amid high levels of inflation caused by Russia’s war in Ukraine. Charlie Bean, a former member of the OBR, and an ex-Bank of England deputy governor, told the Guardian last week that the chancellor would face a shortfall of between £60bn and £70bn to meet the government’s ambition to reduce debt as a percentage of GDP over the next three years. Kwarteng could push back the target date for a fall in the national debt as a share of the economy to five years, which would provide more breathing room, and is likely to argue that his plans should help to spur faster economic growth. Bean said there were three options for the chancellor to balance the books: further U-turns on his tax-cutting plans; deep cuts to public spending; or risking the ire of already rattled financial markets by adding to the national debt.