The Prime Minister is facing D-Day today as the financial markets open for the first time since her economic masterplan was blown apart on Friday. And new Chancellor Jeremy Hunt has vowed “nothing is off the table” when it comes to revising tax cuts and public spending as he seeks to claw back the government’s economic credibility.
Mr Hunt, who was brought in to replace sacked Kwasi Kwarteng, met with the Prime Minister for a crisis summit at her Chequers country retreat yesterday (Sun) in an attempt to thrash out a plan to help save the government.
He is expected to follow up her Friday climbdown on increasing Corporation Tax by axing the mini-Budget’s plan to cut the basic rate of income tax by 1p to 19p.
Appearing on BBC One’s Sunday with Laura Kuenssberg, Mr Hunt said he wants to keep as many of Ms Truss’s tax cuts as he can but all options remain open.
“We’re going to have to take some very difficult decisions both on spending and on tax,” he said.
“Spending is not going to increase by as much as people hoped, taxes are not going to go down as quickly as people thought and some taxes are going to go up.”
And he also said no Government department would be immune from “efficiency savings”, as he signalled spending cuts to come.’
Asked if it was a return to the austerity brought in by the 2010 coalition, he said: “I don’t think we are going to have anything like that this time.”
The Chancellor, who spent Saturday also meeting with Treasury officials, had earlier insisted that he and the Prime Minister were a “team” – but said she and sacked former Chancellor Kwasi Kwarteng went “too far, too fast” with their mini-Budget.
But he insisted Ms Truss remains “in charge” of the Government despite Trussonomics being ditched.
He said the party now has 18 months to turn their fortunes around before an election as he signalled painful spending cuts to come.
“She’s listened. She’s changed. She’s been willing to do that most difficult thing in politics, which is to change tack.
“What we’re going to do is to show not just what we want but how we’re going to get there.”
It comes ahead of a crunch two weeks for the Government, as Mr Hunt bids to put together a new fiscal plan – effectively a full Budget – that can restore some order to the chaos of Ms Truss’s first few weeks in office.
While the new Chancellor warned of “difficult decisions” and fresh “efficiency savings” for all departments, he declined to get into specifics about potential new cuts or what promises could be axed in a bid to save money.
“I’m not taking anything off the table,” he said.
“I want to keep as many of those tax cuts as I possibly can because our long-term health depends on being a low-tax economy. And I very strongly believe that.”
Mr Hunt is expected to announce a delay of the penny cut to income tax – the flagship announcement in his predecessor’s disastrous mini-budget.
In the latest in a series of government U-turns, the new chancellor is likely to push back plans to reduce the basic rate of income tax next April by a year.
The 19 per cent rate will now take effect at the time previously proposed by Rishi Sunak, Liz Truss’s leadership rival.
As well the Corporation tax reversal – it will now rise from 19 per cent to 25 per cent – the decision to axe the 45p income tax rate for the highest earners was reversed during the Conservative Party Conference.
There are also suggestions that Mr Hunt may also renege on plans to increase defence spending to 3 per cent of GDP.
Delaying the basic income tax cut, which would have saved 31 million taxpayers up to £360 a year, is expected to save the Treasury £5 billion a year.
A source familiar with the discussions between the Treasury and Office for Budget Responsibility (OBR) confirmed that the watchdog had warned in its draft forecast that by 2027-28 there would be a black hole in the in the public finances of up to £72 billion.
It means that even after the U-turns on the additional rate of income tax and corporation tax, which will raise £20 billion, the Treasury is still facing a shortfall of up to £52 billion.
Following today’s meeting at Chequers a No.10 source said: “The Prime Minister and the Chancellor met at Chequers this morning to discuss their approach to the upcoming Medium Term Fiscal Plan.
“They are working in lockstep to ensure economic stability and on a positive vision for Britain delivering more jobs, higher wages and better public services.”
The Daily Express understands that Ms Truss will host a Downing Street reception to rally her Cabinet tomorrow after she was hit by three separate calls from Tory MPs to resign.
A source close to the PM said: “The PM will host a reception for the Cabinet at No10 on Monday evening to continue to get their input into the MTFP.
“The Chancellor will host roundtables this week with all Conservative MPs to hear their views on the MTFP.”
The former Foreign Secretary was parachuted into No.11 on Friday to replace Mr Kwarteng in an attempt to restore order to Ms Truss’s ailing administration.
In his first full day in office, he warned of “difficult decisions” to come and suggested that taxes could rise and that there would be more aggressive cuts to public spending.
His comments will add to the sense among some Tory MPs that Ms Truss is increasingly powerless, with her party split about its next steps.
Cabinet ministers are among the MPs privately calling for her to resign.
Meanwhile, experts have warned that there is no real “fat” for Mr Hunt to cut as he seeks savings ahead of the fiscal plan later this month.
A new report, published by the Institute for Government and the Chartered Institute of Public Finance and Accountancy, warns he could find very little to trim from budgets that will not have further detrimental impacts on public services.
Nick Davies, programme director at the Institute for Government, said: “Public services are in a fragile state with little prospect of improvement before the next election.
“These are not isolated problems in specific services, but interconnected structural failures.
“In many cases, there are too few staff, with excessive workloads, working on outdated equipment, in rundown buildings.
“The pandemic exacerbated these problems but they are not new. This has been a lost decade for public services, with performance worse now than it was in 2010.”