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Liz Truss government ‘undercutting’ economic institutions, says ex-Bank of England governor

Mark Carney says mini-Budget measures ‘working at some cross-purposes’ with central bank

Adam Forrest
Thursday 29 September 2022 07:45 BST
Liz Truss defends 45p tax cut to highest earners to protect people from high energy bills

Liz Truss’s government has been “undercutting” the UK’s economic institutions with its borrowing-fuelled tax cut spree, said former Bank of England governor Sir Mark Carney.

Sir Mark – governor from 2013 to 2020 – said the mini-Budget’s measures were “working at some cross-purposes” with the Bank.

“Unfortunately having a partial budget, in these circumstances – tough global economy, tough financial market position, working at cross-purposes with the Bank – has led to quite dramatic moves in financial markets,” he told the BBC on Thursday.

Condemning the decision to push ahead with the tax cut plan without an Office for Budgetary Responsibility (OBR) forecast, Sir Mark said: “I don’t understand why it seems unusual that you actually want to know the numbers in a budget.

“After all that is what a budget is, and understand the forecasts underpinning those numbers … It’s important to have it open to independent and dare I say expert scrutiny.”

Asked whether austerity cuts were now needed, Mr Carney said: “The message of financial markets is that there is a limit to unfunded spending and unfunded tax cuts.”

Ms Truss and Mr Kwarteng’s economic policies have attracted fierce criticism, most notably from the IMF, and the Bank of England had to make an unprecedented intervene to steady a part of the financial markets.

The Bank has had to buy £65bn worth of government bonds – known as gilts – after the borrowing-fuelled tax cuts sparked a sell-off in the market that could have put £1trn-worth of pension pots at risk.

And Treasury sources confirmed to The Independent that cabinet ministers are to be asked to find “efficiency savings” in budgets, with neither health nor any other department exempt.

Labour leader Sir Keir Starmer called for the recall of Parliament, while some Tory MPs have suggested Ms Truss would have to sack Mr Kwarteng.

One former minister told The Independent that Mr Kwarteng may be forced into a humiliating backtrack on his cut to the 45p income tax rate for high earners.

Gerard Lyons, the right-wing economic advisor to Ms Truss’s campaign, criticised Mr Kwarteng for failing to prepare the markets about his mini-Budget tax measures.

“Ahead of the mini-budget, it was necessary for the chancellor to keep financial markets on-side – and I warned about the need for him to do this,” he told BBC Newsnight. “One key group he failed to keep on-side was the financial markets.”

Andrew Sentence, former member of the Bank’s monetary policy committee, said Mr Kwarteng had failed to prepare the Bank properly for the Budget measures.

The chancellor “should have had them in his back pocket” before making his announcement last Friday, Mr Sentence told BBC Radio 4’s Today programme.

Bill Blain, from financial firm Shard Capital, told Today that the mini-Budget was a “policy mistake of unbelievable proportions … These consequences of last Friday’s policy mistake will continue”.

Senior Tory MP Mel Stride, chair of the Treasury select committee, has said chancellor Kwasi Kwarteng must announce his fiscal plan to tackle debt “as soon as possible”.

Mr Stride told TalkTV the chancellor could not wait until 23 November to reveal the plan and the Office for Budgetary Responsibility (OBR) forecast to reassure the panicking markets.

And former Tory chancellor Ken Clarke told Times Radio that no other Conservative government in his lifetime would have made a mistake of this kind.

“They rushed out the budget, building on all the hubris of the leadership election campaign and some of the rather wild things that had been said,” Lord Clarke said.

But Treasury minister Chris Philp insisted that the government would not reverse its growth plan proposals that have led to market instability and refused to apologise for the turmoil.

“I’m not going to get into this post-facto raking over,” he told Sky News on Thursday morning. “I am certainly not going to apologise for having an energy intervention which is protecting every single household in this country.”

Referring to the recent £2,500 cap on annual household energy bills, Mr Philp claimed Mr Kwarteng and Ms Truss “have fixed this energy crisis for families”.

Amid fears of a major return to austerity, Mr Philp also confirmed that government departments have been asked to stick to existing spending limits – despite rising inflation – and be asked to make efficiency savings.

“The efficiency and prioritisation exercise is designed to firstly make absolutely sure we stick to those spending limits and secondly make sure that we are prioritising expenditure, not on anything that is wasteful,” he said.

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