Liz Truss and Kwasi Kwarteng held crisis talks with independent fiscal watchdog the Office for Budget responsibility on Friday morning, amid a warning from a senior Conservative MP that they will have to “rethink” last week’s mini budget.
In a highly unusual move the Prime Minister joined the Chancellor for an emergency meeting with OBR boss Richard Hughes after the Government’s £45billion tax cutting plans sparked mayhem in financial markets.
Following the meeting the Treasury released a statement saying the Prime Minister and Chancellor will “work closely” with the OBR in the coming weeks and “value” the watchdog’s scrutiny.
Members of OBR's budget responsibility committee, Mr Hughes, Andy King and Professor David Miles, left Downing Street at 10.33am – just 48 minutes after they walked in.
A spokesman said: “We discussed the economic and fiscal outlook, and the forecast we are preparing for the Chancellor’s medium-term fiscal plan.
“We will deliver the first iteration of that forecast to the chancellor on Friday, 7 October, and will set out the full timetable up to November 23 next week.”
The backlash against the Chancellor’s ‘Growth Plan’ has led to fresh concerns among some Conservative MPs after a new poll from YouGov published on Thursday showed Labour had surged to a 33 point lead over the Tories – its biggest lead since the late 1990s.
The fallout from last week’s fiscal statement and Ms Truss’s attempt to defuse the row in a series of local radio interviews on Thursday looks set to overshadow the Conservative Party’s annual conference when it starts in Birmingham this weekend.
Having failed to include an OBR assessment of their plans to spend £60bn on an energy bills freeze as well as slashing taxes in a drive for economic growth, Ms Truss and Mr Kwarteng are now under pressure to publish the watchdog’s analysis to restore confidence.
But Mel Stride, Tory chairman of the Commons Treasury Select Committee, said on Friday that the conversation with the OBR would be “very difficult” because the numbers were unlikely to stack up.
He told BBC Radio 4’s Today Programme: “Of course, the judgement so far of the markets, and indeed myself and many others, is that what was announced last Friday, unfortunately, doesn’t stack up fiscally and some changes are almost certainly going to need to be made.”
Asked what he thought the OBR might conclude, he added: “I suspect strongly that it will be that the circle cannot be squared, you can’t come forward with multiple billions of unfunded tax cuts in a high inflationary environment with a very tight labour market and expect that along with various supply side changes to develop the growth that’s going to pay for those tax cuts.
“That that just isn’t feasible, and it’s not going to work. So there needs to be a rethink.”
Mr Stride, who supported Ms Truss’s rival for the Tory leadership Rishi Sunak, added that to pay for the tax cuts – which include reducing the basic rate of income tax from 20p to 19p, abolishing the 45 per cent top tax rate for the highest earners and abandoning plans to raise corporation tax – government spending would have to be slashed back.
The Treasury is already working on plans for Government departments to find efficiencies, triggering fears that ministers will have to unleash a fresh round of austerity to reduce borrowing in the coming years.
Mr Stride said spending cuts would be “extremely difficult given the level of inflation now and the pressures that’s putting on departmental budgets”.
He added that it was “conceivable” that Mr Kwarteng chose not to ask the OBR to publish a simultaneous assessment of his plans because the sums would not have looked good for the Government.
“I think that is conceivable,” he said. “Unfortunately at the moment we don’t know because we haven’t seen this.
“We have actually known that this forecast was available to the Chancellor at the time of his statement and in fact I’ve been pushing for that to be released going back many weeks.”
Former Bank of England deputy governor Sir Charles Bean said it was “unusual” for the independent OBR to meet with the Prime Minister.
“There is regular meetings with the Chancellor, both the chairman of that committee alone and the three members of the Budget Responsibility committee...This particular meeting, obviously is quite unusual and the context for it is quite unusual.”
The Treasury Minister Andrew Griffith welcomed the Prime Minister’s decision to join Mr Kwarteng in meeting with the OBR, adding on Sky News: “They’ve got a really important role to play.
“We all want the forecasts to be completed as quickly as they can.
“But also, as a former finance director, I know that you also want them to have the right level of detail so that that’s where we are in that process.
“We had to act fast, because if we hadn’t tomorrow, the first of October was when energy prices were going to rise across the whole United Kingdom, damaging businesses and households so we had to act a week ago today.”
Amid fears that people on benefits could face a squeeze as the Government looks to save money, Mr Griffith also refused to confirm if payments for poorer families and households would rise, as usual, with inflation next year.
“There will be a normal uprating process that will be followed and that will make those decisions in due course,” he said.
Following the revelation that Labour had surged ahead in voter polls, with one putting the opposition party 33 points ahead of the Conservatives this week, Mr Griffith told Times Radio that the Tories “welcome” scrutiny.
He said: "We have had a busy week laying out the details of our growth plan, making sure our energy package is in place from this Saturday when bills would otherwise have kicked in.
"But, also, we heard from Labour this week [about] more powers for striking workers, so those who aren’t going to get their post delivered tomorrow, who aren’t going to be able to take their train, can reflect on that.
"We also heard how they want to increase the energy insecurity of this country. Energy is the big headwind we are all dealing with. As a result of their desire to have a nationalised energy company and also turn off every last drop of North Sea gas by 2030.
“Hopefully we will see more scrutiny of that as well.”
