UK prime minister Liz Truss and chancellor Kwasi Kwarteng will on Friday try to reassure markets they are serious about bringing down Britain’s debt when they meet the Office for Budget Responsibility, the official forecaster.
The sidelining of the OBR by Kwarteng in last week’s tax-cutting fiscal statement was seen as having contributed to the chaotic market reaction that followed. Mel Stride, chair of the Commons treasury committee, said it was “a great mistake”.
OBR chair Richard Hughes confirmed on Thursday that he could have provided a forecast alongside Kwarteng’s “mini” Budget, but said that “in the event, we were not commissioned”.
The meeting between Truss, Kwarteng and Hughes marks the start of a crucial dialogue in which the government will attempt to craft a debt-cutting plan that is independently assessed as credible.
It is, however, a highly unusual step for independent OBR officials to meet senior politicians at the start of the forecast process. In the March Budget there were no meetings between the OBR and the chancellor, only email exchanges. Before Covid-19, there was normally one face-to-face meeting for the OBR to explain the forecast to the chancellor close to the Budget.
Friday’s meeting risks provoking criticism that politicians are seeking to influence the forecast at the start of the process. One government official said the meeting could reinforce the impression that ministers had “walked all over” Hughes and the independence of the OBR.
The chancellor intends to set out a new medium-term fiscal plan on November 23, which will explain how he intends to reduce debt by the end of the OBR’s five-year forecasting period.
Kwarteng and Truss have insisted they are not going to U-turn on the unfunded £45bn tax-cutting plan announced last week but many Conservative MPs believe a retreat is inevitable.
The chancellor’s five-year plan to restore order to the public finances leans heavily on tight spending control — Labour has warned of a new wave of austerity — which would have to last well beyond the 2024 election.
Benefits could rise by less than the rate of inflation next year after Treasury minister Chris Philp said the issue was “under consideration”, although pensioners may be protected.
Public services are already under huge strain — Stride told the Financial Times that government departments would already have to find £20bn of savings to meet the costs of higher inflation, including higher wage settlements.
Truss and Kwarteng will place the greatest emphasis, though, on their claims that tax cuts and supply-side reforms can boost Britain’s growth rate to 2.5 per cent, bringing in more revenues and cutting the deficit.
The OBR’s Hughes will take some convincing that their plans are credible, especially given the recent market turmoil has forced up interest rates and casts a shadow over the British economy.
Kwarteng wrote to anxious Tory MPs on Thursday to say that “very ambitious” supply-side reforms were on the way in areas such as childcare, business regulation, financial services and agriculture to boost the growth rate.
Stride said an obvious “quick fix” on growth would be to open up Britain to much higher immigration — although such a move will face tough opposition from some Tory MPs.
Kwarteng pleaded with Tory MPs not to turn on the battered government. “We need your support,” he said, as a YouGov poll gave Labour a record 33-point lead over the Conservatives.