Creaking public services must find further real-terms cuts of up to £18bn a year, Kwasi Kwarteng has confirmed – just minutes after his humiliating U-turn on the 45p tax rate.
Budgets will not be topped up to take account of soaring inflation, the chancellor said, a move described by economic experts as likely to have an “extraordinary” impact on the NHS and schools.
Mr Kwarteng argued it was right to stick within spending allocations made in 2021 – although inflation is now more than twice the forecast peak of 4 per cent made then.
“I think it’s a matter of good practice and really important that we stick within the envelope of the CSR [the Comprehensive Spending Review],” he told BBC Radio 4.
But the Institute for Fiscal Studies (IFS) has warned an extra £18bn is needed in each of the next two years to restore “the real-terms generosity intended”, because inflation is around 10 per cent.
The confirmation of the cuts comes as the Treasury also plans real-terms cuts to benefits, to fund the massive tax giveaway that will continue despite the decision to keep the 45p rate.
Mr Kwarteng refused to apologise outright for the 45p blunder, but said: “There is humility and contrition in that – and I’m happy to own it.”
He denied the botched budget 10 days ago was to blame for soaring mortgage rates which BBC Radio 4 called a “Kwarteng premium” inflicted on homeowners.
“What you are representing is a complete distortion or a one sided version of reality,” he argued – pointing to higher rates in the US and Japan.
The chancellor also admitted he was wrong to attend a party with City financiers hours after handing them huge gains through tax cuts, saying “it probably wasn’t the best day to go”.
Asked if he had considered resigning – after less than one month in the post – Mr Kwarteng said: “Not at all, because I’m focused on delivering the growth plan.”
On the campaign trail, Liz Truss suggested she would hold an emergency spending review – because allocations were made when prices were expected to rise by a peak of just 4 per cent next year and beyond.
Inflation is now at 9.9 per cent and is expected to rise to 11 per cent in the autumn, remaining at a similar level for much of next year.
Paul Johnson, head of the IFS, said, last week: “It is pretty extraordinary. There’s a real problem for schools and hospitals doing even the pay rises that they’re doing. It’s going to be a real squeeze.”
Torsten Bell, of the Resolution Foundation thinktank, said: “The reality of double-digit inflation will tightly squeeze the budgets of schools and hospitals, as well as households.
The decision comes despite growing alarm over the record NHS patient backlog, existing cuts to school spending, the crisis in social care and massive delays in the justice system.
