Liz Truss has admitted her government’s mini-budget last week caused “disruption”, after it was followed by a series of economic shocks, including the pound falling to a record low against the dollar.
The prime minister said the government had a “clear plan” and acknowledged the policies may be unpopular.
Kwasi Kwarteng’s announcements a week ago included a cut in income tax from 45p to 40p in the pound for the highest earners. Other taxpayers received a 1p cut in income tax and will get money from a U-turn in the rise in National Insurance. The chancellor said all would help boost growth.
However, there was a strong market reaction to the package, which was the biggest tax cut in 50 years. Subsequently, the Bank of England spent billions of pounds buying public debt to shore up pension plans. It has also indicated that interest rates would rise significantly, which has led to jumps in mortgage rates and lenders have made many offers.
Writing in the Sun, Truss did not address the changes to the 45p rate, or the scrapping of bankers’ bonuses, which were also included in Kwarteng’s announcements. He said: “For too long we have been stuck debating how to divide the economic pie, rather than growing the pie so that everyone gets a bigger slice.
“The status quo is not working. For too long we have been held back by low growth and high taxes. We need to do things faster in this country.
“So I’m going to do things differently. It involves hard decisions and it involves short-term disruptions.
“Not everyone is going to like what we’re doing, but I want to reassure the public that the government has a clear plan that I think is right for the country.”
Earlier on Friday, he had told broadcasters: “I recognize there have been disruptions, but it was very, very important that we were able to get help to the families as quickly as possible.
“What is important to me is that we get Britain’s economy back on track, that we keep taxes low, that we encourage investment in our country and that we get through these difficult times.”
His comments were echoed by Kwarteng, who said the government must “stick to the plan”.
“Cutting taxes increases growth. Reforming the economy to increase the amount of goods and services we produce lowers costs,” he wrote in the Telegraph.
“Not all the measures we announced last week will be universally popular. But we had to do something different. We had no other choice.”
He said new policies on how ministers will reduce public debt and restore fiscal credibility will be announced on November 23, along with a forecast from the Office for Budget Responsibility. The prediction will be sent to the government on October 7, but it will be six weeks before it is made public.
Meanwhile, Simon Clarke, the chief secretary to the Treasury, hinted that there could be big cuts in social spending, telling the Times: “My big worry in politics is that Western Europe is just living in a paradise of fools where we can be less and less productive. to our peers, and yet they enjoy a very large welfare state and persist in thinking that the two are somehow compatible in the medium and long term. They are not. “