Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng are holding talks Friday with the UK government’s fiscal watchdog, amid intense criticism over their unfunded tax cuts that roiled markets.
The new administration opted to announce the largest package of tax cuts in half a century last Friday without analysis by the Office for Budget Responsibility, and Kwarteng is not planning to set out how he will pay for his plans until Nov. 23. That decision was taken because some policies that needed to be factored in by the watchdog were not ready to be announced, City Minister Andrew Griffith suggested Friday.
The lack of transparency backfired as financial traders responded by driving the pound to a record low against the dollar, while the Bank of England was forced to intervene to prevent a meltdown in the bond market. Senior Conservative MPs have urged Kwarteng to bring forward his medium-term fiscal statement, which will be accompanied by a full OBR forecast.
The Treasury had no plans to publish the OBR’s full forecast -- or part of it -- earlier than scheduled, a person familiar with the matter said ahead of Friday’s meeting.
It is unusual for OBR officials to meet the chancellor, let alone the prime minister, this early in the forecast process. Records of “substantive contact” between the watchdog and Treasury ministers show that the early contacts are typically by email. However, there have been in-person meetings when a new chancellor or OBR chairman is appointed, so Kwarteng’s meeting with Richard Hughes, the OBR chairman is less surprising. But there are no records of the prime minister joining in any of the budget rounds over the past six years.
Senior Tory Urges UK to Release Independent Forecast Faster
Truss will be hoping that visibly engaging with the fiscal watchdog will help to calm market nerves. Yet much depends on what the OBR makes of her economic plans, especially given the tax cuts were announced before accompanying policies were finalized.
“It’s now important that we go forward and get those independent forecasts,” Griffith told BBC Radio 4 on Friday. The details are yet to come on “a lot of measures about how we’re going to grow the economy,” he said.
Both Truss and Kwarteng used media interviews Thursday to dig in over their economic plans. But the market turmoil has caused considerable anger among Conservative MPs, with some privately already calling on Kwarteng to quit.
Amid the fallout, the opposition Labour Party has soared to a record 33-point lead in YouGov polling, and while the next general election is not due for another two years, the atmosphere is febrile heading into the Tory party’s annual conference, which starts Sunday in Birmingham.
In a private WhatsApp message to Tory MPs, Kwarteng on Thursday pleaded with colleagues to back the government’s plans and not to air their criticism in public. “We need your support to do this as the only people who win if we divide is the Labour Party,” he said in the message seen by Bloomberg.
Speaking on BBC Radio 4 on Friday, senior Tory backbencher Geoffrey Clifton-Brown urged Truss’s government to bring forward “as much as possible” its next financial statement to give a full picture of its plans.
“We’ve got to give her a little bit of time,” said Clifton-Brown, who is also an executive of the 1922 Committee of rank-and-file Tories that decides party rules. “And time especially to try and reassure the markets that they know exactly what they want to do for the economy.”
Those kinds of remarks so soon into an administration will ring alarm bells for Truss, who has made the most turbulent debut of any British prime minister in peacetime.
(Updates with Treasury plans, unusual nature of meeting from fourth paragraph)
©2022 Bloomberg L.P.
BNN Bloomberg Picks
Eric Nuttall's Top Picks: November 25, 2022
A muted Black Friday for Canadians amid inflation, online shopping and longer deals
Holiday shopping: Expert advice on finding deals and saving
Inflation relief measures should be well targeted and temporary, says Macklem
How stay-at-home spouses can build credit
Looking for tax-loss season bargains for 2023 and beyond: Berman