Horrified Tories Berate "Consequences" Of Tax Cuts After Value Of Pound Tumbled
Kwasi Kwarteng leaving Downing Street. 9Alamy)
A wave of discontent is building among some Conservative MPs after the value of the pound has reached a historic low in the wake of sweeping tax cuts announced in Chancellor Kwasi Kwarteng's "mini budget".
Furious Tory MPs who backed Rishi Sunak to be the next party leader and prime minister, are now pointing to the former chancellor's warnings that the huge tax cuts promised by Liz Truss, and now enacted by Kwarteng, would do serious damage to the economy.
During the leadership contest, Sunak was criticised by his detractors for refusing to promise tax cuts to reverse the highest rates in decades as a result of Covid spending, until inflation had been brought under control.
But as Truss and Kwarteng faced fiscal chaos unleashed by last Friday's statement, many of those who had been in Sunak's camp found themselves vindicated.
"Rishi was less Project Fear, more Project Accurate," said one senior Tory MP.
PoliticsHome understands that an August opinion piece published by The Spectator, in which financial commentator Matthew Lynn criticised Sunak's "desperate" warnings about what Truss' plans would to do the pound, was being circulated among Tory MPs on Monday.
In the article, titled "Who is Sunak kidding with his warnings about sterling?", Lynn says that according to Sunak, there will be "a run" on the pound and the gilts market will be in "freefall" once Truss and Kwarteng announce their economic plans.
The pound fell to a 37-year low on Monday morning, and to its lowest ever level against the dollar.
"Those who only backed Liz for their career are quickly realising the consequences of their actions," a Conservative party source told PoliticsHome.
Asked about how the economic turmoil was being received within the party, one senior Tory MP replied simply, "😬".
Kwarteng, who argues that the government's plans will kickstart growth, has responded to pressure to explain how he will stabilise the markets with a statement via the Treasury this afternoon.
The government confirmed that Cabinet Ministers will announce "further supply side growth measures in October and early November, including changes to the planning system, business regulations, childcare, immigration, agricultural productivity, and digital infrastructure".
They added: "Next month, the Chancellor will, as part of that programme, outline regulatory reforms to ensure the UK’s financial services sector remains globally competitive.
"He will then set out his Medium-Term Fiscal Plan on 23 November. The Fiscal Plan will set out further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium term."
The Treasury said Kwarteng has requested that the Office for Budget Responsibility (OBR) sets out a full economic forecast alongside the plan, and confirmed there will be another Budget in the Spring with a further OBR forecast.
The Bank of England also put out a statement this afternoon, saying it "will not hesitate to change interest rates as necessary”, and was "monitoring developments in financial markets very closely in light of the significant repricing of financial assets”.
Its governor Andrew Bailey said: "I welcome the government's commitment to sustainable economic growth, and to the role of the Office for Budget Responsibility in its assessment of prospects for the economy and public finances.”
He added that the Bank’s monetary policy committee “has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government's announcements, and the fall in sterling, and act accordingly”.
Jonathan Reynolds, Shadow Secretary of State for Business and Industrial Strategy, this morning likened Friday's fiscal event to the Black Wednesday crisis of 1992, when the UK was forced to withdraw from the Exchange Rate Mechanism. The Conservative government led by John Major went on to suffer a landslide defeat five years later.
Speaking at Labour conference in Liverpool, Reynolds said it would be remembered as "a moment of economic disaster".
Shadow Chancellor Rachel Reeves accused Kwarteng and Truss of "gambling all of our money" on their controversial economic policy paying off.
Tory MPs including Mel Stride, chair of the Treasury Select Committee, expressed nervousness over the fact that Kwarteng's statement wasn't accompanied by an economic forecast by the Office for Budget Responsibility.
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