September 30, 2023

UK: Kwarteng – We stopped consumer spending collapse

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By Tom Espiner & Daniel Thomas
Business reporters, BBC News

Chancellor Kwarteng is asked whether the government will stick to past pledges linking pension and benefits rises to inflation.

Chancellor Kwasi Kwarteng has said his mini-budget was needed to stop a collapse in consumer spending, despite it sparking days of market turmoil.

He told MPs that cutting taxes and limiting energy bills had protected the economy.

The plans, announced on Friday, have led to a slump in the pound and the Bank of England stepping in to prevent the collapse of some pension funds.

Mr Kwarteng said he was working at pace to show markets he had a “clear plan”.

In a message to Conservative MPs, shared with the BBC, the chancellor said he understood their concern about the mini-budget, which promised £45bn of tax cuts funded by government borrowing.

Fears this would be unaffordable and drive up interest rates sent markets into a panic, with government borrowing costs surging and the pound hitting a record low on Monday.

Mr Kwarteng insisted the market volatility was “global” and being driven by the Ukraine war, Covid, and “a super strong US dollar”.

He added that the government had needed to “act quickly”.

“However I totally understand the need to be credible with markets,” he told MPs. “We will show markets our plan is sound, credible and will work to drive growth.”

He added that the government would announce reforms in “childcare, business regulations, financial services, agriculture and more” over the next six weeks.

The Treasury select committee, which is led by Conservative MP Mel Stride, an ally of former leadership contender Rishi Sunak, rejected the government assertion that market turmoil was being caused by global factors.

In a letter to Mr Kwarteng on Thursday, Mr Stride said that drop in the price of government bonds following the announcement of the government plans was greater than “any movement during the global financial crisis or the pandemic”.

He said the financial impact of the mini-budget is larger than a typical Budget, but there had been no assessment by the independent Office for Budget Responsibility (OBR) to go with it, despite the OBR saying it could produce one.

“Some may have formed the unfortunate impression that the government may be seeking to avoid scrutiny,” he said.

Mr Stride called on Mr Kwarteng to provide an OBR forecast “earlier” than 23 November, when the government is due to publish its medium term fiscal plan.

The OBR said on Thursday that it had been asked by Mr Kwarteng to produce a first draft of its next economic forecasts by 7 October.



Zoe Conway, BBC News correspondent

In this message, the chancellor is seeking to reassure MPs that he is working quickly to come up with a plan to calm the markets.

In the face of mounting criticism from his backbenchers, he is also urging them to stay united.

On 23 November, Mr Kwarteng is due to set out his medium term fiscal plan.

He argues this will show how he intends to get debt falling but he has been coming under pressure from Conservative MPs to act more quickly.

There is scepticism among MPs that the economic growth needed to pay for the announced tax cuts and the government’s energy bills intervention can be generated quickly enough.

That’s why, in this note to Conservative MPs, he says that there are lots of ”ambitious” supply side reforms coming over the next six weeks.

The chancellor might be conciliatory in tone, saying he always values colleagues and that he is ”always available for a meeting”, but there is no hint here that he is prepared to backtrack on any aspect of his economic plan.


It is the first time Mr Kwarteng has made a public comment on his mini-budget since Sunday, when he hinted that there were more tax cuts to come.

Since then the plan has faced widespread criticism, with the International Monetary Fund and former Bank governor Mark Carney disparaging the plan.

On Wednesday, the Bank of England was forced to intervene, pledging to buy $65bn of government bonds in a bid to calm markets.

However, there are concerns the turmoil could continue and fears it might affect the housing market. A record number of mortgage products have been pulled since Friday, amid fears the Bank of England will have to raise interest rates much more sharply than previously expected.

‘Right plan’

Speaking to reporters on Thursday, Mr Kwarteng rejected claims the government’s plans had made people worse off by contributing to a spike in UK mortgage rates.

He added that government’s plan to limit energy bills for households and businesses would save people “thousands of pounds a year”.

However, the chancellor said it was too early to say whether he would keep the previous government’s promise to increase benefits next April in line with inflation.

He did, however, say the prime minister was committed to reinstating the triple lock on pensions, which means they increase by whichever is highest: inflation, the average wage rise, or 2.5%.

Mr Kwarteng’s remarks came after Prime Minister Liz Truss spoke to a number of BBC radio stations on Thursday morning, where she insisted the tax cuts outlined in the mini-budget were the “right plan”.

Prior to the mini budget, the Treasury had turned down an independent forecast of the impact of government’s plans on the economy by the OBR. BBC economics editor Faisal Islam said this had made the market reaction to the plans worse.

For more on this story go to: BBC

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