Kwasi Kwarteng and Liz Truss are trapped – and Labour will leave them to it

The new government can’t cut spending, can’t put up taxes, can’t carry on regardless, writes John Rentoul

The opposition to Kwarteng from the actual opposition was so half-hearted that the chancellor seemed to relax (Reuters)

Kwasi Kwarteng returned to parliament, the scene of the explosion of the bomb of the mini-Budget 18 days ago. The crater was still there: there were few Conservative MPs in the blast area, the benches just behind the front bench, where the government’s supporters usually sit.

The chamber of the Commons even looked like a hung parliament. The Rishi Sunak Party sat at the far end of the government backbenches: Michael Gove, Mel Stride, John Glen and Priti Patel prominent among them.

The attacks on the chancellor came from both ends. Stride, the chair of the Treasury Committee who forced Kwarteng to bring his Medium-Term Fiscal Plan forward to the end of this month, cautioned him to make sure he “reaches out as much as he can across this side of the House, and the other side of the House, to be absolutely sure he can get those measures through this House; any failure to do so will unsettle the markets”.

In other words, never mind the opposition on the benches opposite, you will have to negotiate your measures with us, the internal opposition. Kwarteng thanked Stride with elaborate courtesy for his “wise counsel”.

From the other end of the government benches, by the speaker’s chair, Julian Smith, the former Northern Ireland secretary and another Sunak supporter, asked if ministers could “confirm that the government will not balance the forthcoming tax cuts on the backs of the poorest people in our country”. The chancellor said several times that no decisions have been made on whether benefits will be uprated in line with inflation, which is code for: we realise that there is no way we can cut benefits in real terms but we are not ready to announce it yet.

The opposition to Kwarteng from the actual opposition was so half-hearted that the chancellor seemed to relax as he faced MPs across the chamber. Rachel Reeves, the shadow chancellor, said, “gilt yields up 100 basis points in a single day”, which was a way of reminding people she used to work for the Bank of England, and used a line so formulaic – “a British crisis made in Downing Street” – that it could have been written by a simple computer programme fed with all opposition speeches since the war.

The only spark of inter-party politics that threatened to liven up a dull session was when Reeves concluded by demanding that the chancellor “reverse the Budget”. Kwarteng asked which of the tax cuts she wanted to reverse: “Do they want to stop the cut in the basic rate?”

He has half a point. Labour supports – or “does not oppose” – the cut in the basic rate of income tax, the national insurance cut and the stamp duty cut. It also supports the huge spending to help with energy bills. But presentationally “reverse the Budget” is a simpler message, and Reeves was keeping it simple today, mainly by not interrupting the Tory civil war raging on the benches opposite.

She and Keir Starmer know that the new government is trapped. It cannot cut spending, because Stride and Julian Smith won’t vote for it. It cannot raise taxes, because the other side of the Tory party won’t vote for it. And it cannot leave things as they are, because the markets are not convinced that the government’s credit is good.

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Truss and Kwarteng can try to plough on, paying higher and higher interest rates on government borrowing, in the hope that the market will come round to their view that tax cuts will produce growth. But no one thinks that the cuts in the basic rate of income tax and in national insurance will pay for themselves in anything other than the longest of terms.

The Institute for Fiscal Studies (IFS) says the government is a long way from stabilising the national debt. And the markets know that. Truss and Kwarteng will be familiar with Margaret Thatcher’s words from 1988: “There is no way in which one can buck the market.”

When the government is destroying itself by trying to deny reality, the opposition doesn’t need to do much. Labour has a slightly more fiscally responsible policy than the government, because it wants a higher windfall tax and a rise in corporation tax, so all Reeves had to do today was stand back and wait.