Chancellor of the Exchequer Kwasi Kwarteng at the annual Conservative Party conference in Birmingham, U.K., on Oct. 2.TOBY MELVILLE/Reuters
British finance minister Kwasi Kwarteng will vow on Monday to stay the course with his planned tax cuts but promised an “ironclad” commitment to fiscal discipline after a week of market turmoil in response to his growth package.
At the start of the governing Conservative Party’s annual conference, Kwarteng and Prime Minister Liz Truss have been forced to defend a plan that failed to spell out the financing for deep tax cuts combined with an expensive package of energy subsidies.
That lack of detail roiled the markets, with the pound falling to record lows against the dollar and government borrowing costs soaring. On Friday ratings agency Standard & Poor’s cut the outlook on Britain’s sovereign credit rating to negative, meaning a downgrade could be on the way.
But Truss and Kwarteng have resisted calls to reverse their planned abolition of a top rate of income tax and a cut in the basic rate.
Kwarteng has said he will set out his funding plans on Nov. 23 in a full fiscal statement, and on Monday he will reiterate that his policies aim to spur growth and will work out to be fiscally responsible.
“We must face up to the facts that for too long our economy has not grown enough. The path ahead of us was one of slow, managed decline,” Kwarteng will tell the party in the central English city of Birmingham, according to advance extracts.
“We needed a new approach, focused on raising economic growth … We must stay the course. I am confident our plan is the right one.”
Expectations are growing that spending cuts are coming, after Truss on Sunday did not deny the plan would require a reduction in public service funding. She also refused to commit to increasing welfare benefits in line with inflation, a Conservative party campaign promise.
Kwarteng reiterated his full fiscal statement would be accompanied with a forecast by the Office for Budget Responsibility (OBR), an independent body which vets government fiscal statements but was cut out of checking the growth plan.
The finance minister will have to work hard to restore confidence, including from lawmakers in his own party. On Sunday, former minister, Michael Gove, long at the heart of government, hinted he might vote against cutting taxes for the wealthy.
Sterling has recovered from its initial slump and government bond yields have stabilized – albeit at a high level – after the Bank of England announced a plan to buy up to 65 billion pounds ($72.54 billion) of long-dated debt.
Truss has taken some of the blame for the market meltdown, saying the government should have laid the ground better for the package.
The International Monetary Fund last week said the tax cuts would probably worsen inequality and undermine the BoE’s fight against inflation.
Regardless, Kwarteng looks set to double down, promising what he called a new economic deal for the country.
“What Britain needs is economic growth. And a government wholly committed to economic growth,” he will say.
“That is why we will forge a new economic deal for Britain backed by an ironclad commitment to fiscal discipline.”