Pressure mounts on Truss and Kwarteng over economic plans

Senior Tories warned the Chancellor of further turmoil if he does not get the support of MPs for his fiscal measures.

Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng (Stefan Rousseau/PA) (PA Wire)

Top Tories have piled pressure on Liz Truss and Kwasi Kwarteng over benefits and their economic plans, which also came under fresh fire from the International Monetary Fund (IMF).

As Parliament returned on Tuesday, the Chancellor was warned the Government’s economic credibility would be further shredded if he tries to push through the policies without the support of Conservative MPs.

At the despatch box, Mr Kwarteng was cautioned by senior Tory Mel Stride to reach out to members across the Commons to be “absolutely certain” he can get the measures approved or “unsettle the markets”.

He was also told by former Cabinet minister Julian Smith that the Government must not balance forthcoming tax cuts “on the back of the poorest people in our country”.

The grave warnings during a session of Treasury questions demonstrated the continuing deep rifts in the Tory party triggered by Mr Kwarteng’s mini-budget and the Government’s refusal to rule out giving benefits claimants a real-terms cut to their incomes.

A decision on whether benefits will rise in line with inflation or earnings will be announced by Mr Kwarteng during his medium-term fiscal plan on October 31, it has been confirmed.

The financial strategy will set out how the Government plans to get debt falling as a proportion of national income in the wake of the £43 billion mini-budget tax giveaway and the commitment to cap energy bills for the next two years.

The Chancellor will have to find more than £60 billion of spending cuts to get the public finances back under control if he does not cancel tax cuts, leading economic think tank the Institute for Fiscal Studies (IFS) has warned.

In response, Downing Street said Ms Truss still rejects austerity.

Asked if she stood by her predecessor Boris Johnson’s commitment that there would be no return to the austerity era, the Prime Minister’s official spokesman said: “Yes.”

He continued: “These are challenging times and we have made significant interventions costing many billions to provide the necessary support to protect people from these global challenges.

“Obviously that will require some decisions on spending, but it will be the Chancellor who comes forward to set those out.”

No 10 also defended the Government’s tax-slashing agenda despite the IMF’s suggestion that it has made the Bank of England’s fight to curb inflation more difficult.

“I think the Government puts in place policies to support British people at a time of global high prices.

“That’s why we think it’s right to step back from the highest tax burden in 70 years and ensure the public can keep all of the money they earn,” Ms Truss’s spokesman said.

The Washington-based organisation said the UK is on course for a sizeable slowdown in growth from 3.6% this year to 0.3% in 2023.

The Prime Minister’s spokesman said that the “projections were prepared before the announcement of the growth plan and the energy price guarantee”, and pointed to the IMF’s suggestion that the Government’s fiscal measures are expected to lift growth in the near term.

Ms Truss and Mr Kwarteng remain “committed” to the growth measures set out in the Chancellor’s mini-budget despite the ensuing market turbulence that forced the Bank of England to intervene once again, the official said.

“The Prime Minister remains confident that the measures set out will deliver growth in the economy.

“The Chancellor set out our position on tax and reducing the tax burden,” he added, saying the Government’s position “has not changed”.

But they are under mounting pressure to reverse course again, after already being forced to abandon plans to scrap the 45p top rate of tax.

The latest emergency intervention by the central bank to calm markets spooked by the mini-budget did not come up at Tuesday’s Cabinet, Ms Truss’s spokesman said.

The central bank stepped in with further emergency action for the second day running to head off a “fire sale” of UK Government bonds, which it said posed a “material risk to UK financial stability” after yields on long-dated gilts soared once more on Monday.

The spokesman said the Bank’s intervention is “in line with its financial stability objective and we are in regular contact with the Bank, which will closely monitor markets in the coming days”.

Ms Truss is set to hold a series of meetings with mutinous MPs this week in a bid to secure support for her plans after a torrid conference season for the Government.

In a break with tradition, the Prime Minister’s spokesman does not attend Cabinet under Ms Truss.

Under her predecessor Mr Johnson, the official always attended, but has not been at either of the two Cabinets since Ms Truss took office.