Kwasi Kwarteng must release new forecasts for the UK economy by the end of October to calm the chaos in financial markets caused by the UK Chancellor’s ‘mini’ budget, the Tory chair of the Commons Treasury Committee has said.
“What markets need is truth,” Mel Stride told the Financial Times. “You really need to know where this is going,” he added, adding that the chancellor urgently needs to show markets he has a credible debt control plan, rather than waiting until the end of November.
The senior Tory backbencher said Kwarteng made “a huge mistake” in not commissioning Office for Budget Responsibility forecasts to be released alongside his controversial tax cut statement last Friday.
To show markets that the government is taking the OBR’s deliberations seriously, Kwarteng and Prime Minister Liz Truss are set to meet with the body’s chair, Richard Hughes, on Friday to discuss the process.
Kwarteng has promised to release his medium-term debt control plan on November 23, along with a new OBR forecast that would provide a verdict on whether the chancellor’s sums are paying off.
Richard Hughes, chairman of the OBR, confirmed in a letter to SNP leader Ian Blackford on Thursday that he had offered to write an updated forecast to be released along with Kwarteng’s financial report on September 23, but the chancellor declined offer off.
Stride, a key supporter of former Chancellor Rishi Sunak in the Tory leadership campaign, said Kwarteng had left a “huge void” by not having his plan independently verified and had written to him on behalf of the Finance Committee asking him for new forecasts End of October.
“The markets are in a very difficult situation,” he said. Stride argued that the release of OBR forecasts would be a moment of truth that would force Kwarteng to make tough decisions to prove to independent economists that he can deleverage as a percentage of GDP within five years.
“I don’t expect a responsible government would put themselves in a position where they would go out and say the OBR doesn’t think our plans are realistic, but we’re going ahead anyway,” he said.
Kwarteng insists his tax cuts and supply-side reforms would boost annual growth to 2.5 percent and generate the revenue needed to put debt on a downward path over the medium term.
Stride said if the OBR concluded that this was wishful thinking — as markets believe — Kwarteng would have several uncomfortable options to convince forecasters he could add up his totals.
One option would be to reverse some of his unfunded £45billion in tax cuts: a reversal ruled out by Kwarteng, who on Thursday again insisted he was sticking to his plan.
A second would be public spending cuts, although Stride noted public services were already strained and facing around £20bn in extra costs related to higher inflation, leading to higher wages and other costs.
The third would be aggressively pursuing supply-side reforms to try to persuade the OBR that growth could be accelerated. He said a sharp increase in immigration – highly controversial in the Tory party – was a “quick fix”.
“If you are really willing to open up immigration in the short term, recruit skilled workers and farm workers, you might be able to convince the OBR of a sustainable growth spurt,” he said.
Stride said the situation was “challenging but not catastrophic,” but he slammed Kwarteng for seeking unfunded tax cuts. He said that controlling inflation and conducting supply-side reforms should come first.
“The problem was a cart in front of the horse that the markets didn’t buy,” he said.
Treasury insiders insist that the OBR typically takes 10 weeks to produce a full forecast and that it made sense to release this in November along with the new medium-term financial plan, which has only just been commissioned.
Meanwhile, bookmakers have made Sunak, who had warned Prime Minister Liz Truss that her economic plans would wreak havoc during the leadership contest, the favorite to succeed her as PM – less than a month after beating him. He will not be attending next week’s Tory conference in Birmingham.
Sunak’s allies expect the former chancellor to remain in British politics – he has said he wants to continue serving his North Yorkshire constituents – and dismiss speculation he is aiming to return to a business career in the US.