United Kingdom Treasury chief Kwasi Kwarteng says he will bring forward the publication of the government’s full fiscal statement after facing widespread criticism for not providing details about a multibillion-pound, tax-cutting stimulus package he announced last month.
Kwarteng had been expected to publish details of his financial strategy on November 23, two months after he first unveiled plans that included ?45 billion (US$50 billion) in tax cuts, to be paid for by government borrowing. That plan sparked days of turmoil on world financial markets, sent the British pound tumbling to record lows against the US dollar, and forced the Bank of England to intervene to prop up the bond market.
Kwarteng said on Monday he will now set out his medium-term fiscal plan and publish economic forecasts from the independent Office for Budget Responsibility on October 31.
It was another course reversal for the embattled Treasury chief, who last week said he would abandon plans to scrap the top 45 per cent income tax rate for top earners — a policy that had drawn almost universal opposition.
That U-turn was welcomed by many, but Kwarteng and Prime Minister Liz Truss’s Conservative government still face deep scepticism because they have said they will stick to the government’s other tax policies, including slashing the basic rate of income tax and reversing a corporation tax hike planned by the previous Conservative government.
Former Cabinet minister Grant Shapps said the decision to bring forward the full fiscal statement was “a belated but sensible move, given the urgent need to show markets the most transparent view of the UK economy”.
Mel Stride, the chair of Parliament’s treasury committee, welcomed the decision and said it could result in a smaller-than-expected rise in interest rates. The government’s unfunded tax-slashing plan has sparked widespread concern that the Bank of England will soon hike interest rates significantly to tame inflation.
The central bank has been raising the benchmark interest rate steadily in recent months as inflation continued to climb, but many economists predict that the bank will announce a sharper increase in November.
The government insists its plan will boost economic growth, but many critics say the tax cuts will likely mean taking money away from public spending like social services, leaving the poorest worse off amid the UK’s toughest cost-of-living crisis in decades.
The market turmoil has also had an immediate negative impact on aspiring home buyers and thousands looking to remortgage their homes, as lenders withdrew scores of mortgage deals amid the uncertainty. The interest rates of some mortgages rose last week to their highest levels in more than a decade.
Also on Monday, the Bank of England announced measures to ensure an “orderly end” to its emergency bond-buying programme, which it launched late last month to calm the markets and avoid “widespread financial instability” sparked by Kwarteng’s stimulus package.
The bank pledged to buy ?65 billion worth of government bonds days after the Conservative government’s economic plan sparked market upheaval that left some pension funds close to collapse.