Kwasi Kwarteng must publish new forecasts for the British economy by the end of October to calm the chaos in the 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. “They really need to know where this is heading,” adding that the chancellor urgently needed to show the markets that he has a credible plan to control debt rather than waiting until late November.
The senior Tory backbencher said Kwarteng had made “a great mistake” by not commissioning forecasts by the Office for Budget Responsibility to publish alongside his controversial tax-cutting fiscal statement last Friday.
Kwarteng has instead promised to publish his plan to control debt in the medium term on November 23 alongside a new OBR forecast, which would deliver a verdict on whether the chancellor’s sums add up.
Stride, a key backer of former chancellor Rishi Sunak in the Tory leadership campaign, said Kwarteng had left a “great big void” by failing to have his plan independently verified and has written to him on behalf of the Treasury committee asking for new forecasts by the end of October.
“The markets are in a very difficult position,” he said. Stride argued that the publication of OBR forecasts would be a moment of truth, forcing Kwarteng to make tough decisions to prove to independent economists he can cut debt as a share of GDP within five years.
“I do not expect that any responsible government would put itself in a position where they go to the market and say the OBR doesn’t think our plans are realistic, but we’re going ahead anyway,” he said.
Kwarteng insists that his tax cuts and supply side reforms would boost annual growth to 2.5 per cent, generating the revenues needed to put debt on a downward path in the medium term.
Stride said that if the OBR concluded that this was wishful thinking — as the markets believe — Kwarteng would then have several unpalatable options to convince forecasters he could make his sums add up.
One option would be to reverse some of his £45bn of unfunded tax cuts: a U-turn which has been ruled out by Kwarteng, who insisted again on Thursday that he was sticking to his plan.
A second would be to slash public spending, although Stride noted that public services were already strained and face around £20bn of extra costs linked to higher inflation, which feeds into higher wages and other costs.
The third would be to pursue supply side reforms aggressively to try to convince the OBR that growth could be forced up. He said a big increase in immigration — highly controversial in the Tory party — was one “quick fix”.
“If you’re really prepared to open up immigration in the short term, bring in skilled people and agricultural workers, you might be able to convince the OBR you could have a sustainable surge in growth,” he said.
Stride said the situation was “challenging but not a disaster” but he was critical of Kwarteng for pursuing unfunded tax cuts. He said that controlling inflation and delivering supply side reforms should have come first.
“The problem has been a cart before the horse approach to this, which the markets haven’t bought,” he said.
Treasury insiders insist that the OBR normally needs 10 weeks to conduct a full forecast and that it made sense to publish that in November alongside the new medium-term fiscal plan, which has only just been commissioned.
The bookmakers have made Sunak, who warned prime minister Liz Truss that her economic plans would result in chaos during the leadership contest, the favourite to succeed her as prime minister — less than a month after she defeated him. He will not attend next week’s Tory conference in Birmingham.
Sunak’s allies expect the former chancellor to stay in British politics — he has said he wants to carry on serving his constituents in North Yorkshire — and dismiss speculation that he is eyeing a return to a business career in the US.