Rishi Sunak has dismantled what was left of Liz Truss’s legacy on his first day as Prime Minister, abandoning fracking and refusing to guarantee the triple freeze on pensions or an increase in defense spending.
Any changes to pensions or a decision not to increase benefits in line with inflation would mark new battle lines between Sunak and Tory MPs, some of whom have said they would not support cuts that fall on the most vulnerable.
Sunak and the chancellor, Jeremy Hunt, also delayed the autumn statement by another fortnight to give departments more time to find double-digit savings to plug an estimated £35bn black hole, balanced by more tax measures. The Treasury has drawn up an initial menu of 70 tax and spending options, according to the Guardian.
Hunt will meet new cabinet ministers over the next few days to brief them on the fiscal situation and to discuss the effects on departments and the scale of cuts needed. The chancellor is understood to be planning a fiscal state that balances spending cuts and tax rises 50/50, including a possible extension of the windfall tax on oil and gas companies.
Under George Osborne, the Treasury operated on an 80/20 formula of cuts and fiscal measures, but there is said to be a widespread understanding that public services cannot take such severe further cuts, especially with high inflation .
Ministers will re-examine the triple lock on pensions and increase benefits in line with inflation over the next fortnight, according to Number 10, although the option to make changes would be politically difficult.
In his final PMQs before his departure, Truss committed to the triple lock – a guarantee that the state pension will rise every year whichever is higher by inflation, income growth or 2.5% – and Sunak imply that it would not be his preferred course of action by referring to the commitments in the manifesto. Ending the triple lock on pensions by 2024-25 would save £11 billion.
“This is something that will be incorporated into the fiscal statement, we will not comment ahead of any fiscal statement or budget,” Sunak’s spokesman said. “But what I can say is that he has shown through his record as chancellor that he will do what is right and be compassionate to the most vulnerable.”
Cabinet movers
On benefits, Sunak would face a possible backlash from the cabinet and parliament. The new work and pensions secretary, Mel Stride, had previously warned that it would be “extraordinarily difficult” for the government to persuade MPs to link the increase in benefits to rising wages rather than inflation.
Sunak is also believed to be wary of Truss’ promise to increase defense spending, a pledge from his leadership campaign. Defense Secretary Ben Wallace, who retained his post in the cabinet reshuffle, has made clear in the past that he wants defense spending to rise to 3% of national income by 2030.
In his first appearance in the Commons as prime minister, Sunak said fracking would effectively remain banned under his government, referring to the 2019 manifesto that put a moratorium on shale gas extraction. A formal step will be taken in the coming days to confirm the renewal of the ban, likely a written ministerial statement.
‘Defeated by a Prime Minister who lost on a lettuce’: Starmer hits out at Sunak at first PMQs – video highlights
Sunak’s spokesman ruled out reinstating the National Insurance rise, which Truss repealed, saying it was difficult to pause now that it had been voted on in parliament.
The spokesman also confirmed that planned changes to the Truss bid, which targeted eight areas including planning, the environment and childcare, had been abandoned and could have resulted in a new wave of deregulation.
Officials have been warned that the scale of the task requires budgets to fall by at least 7.8% in real terms over the next four years, which would be on a similar scale to David Cameron’s years of austerity.
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The Institute of Government said in a new briefing that maintaining public sector pay and cutting staff was not politically or practically feasible given the high rate of inflation and widespread problems with retention and recruitment that led to shortages in the NHS and education.
He said there was already a severe strain on capital spending, with maintenance backlogs for schools, the NHS, courts and prisons already at £23.7bn.
The new date for the fiscal event means that the Office for Budget Responsibility’s (OBR) economic plans and forecasts will not be available until the next meeting of the Bank of England’s monetary policy committee (MPC), which sets interest rates on November 3.
Hunt said the change of plans had been discussed with the Bank’s governor, Andrew Bailey, and that he “understands the reasons for doing so and I will continue to work very closely with him”.
Hunt said: “I want to confirm that it will show that debt is coming down in the medium term, which is really important for people to understand. But it’s also extremely important that this statement is based on the most accurate economic forecasts and public finance forecasts possible”.
It is the second time that the date of the declaration has been changed. It was originally announced by Kwasi Kwarteng for November 23, but was then pushed forward under intense political and economic pressure to October 31, partly to inform the MPC meeting.
Bailey had previously welcomed the decision to make the tax return ahead of a possible rate hike decision, calling it the “right sequence,” and said it would be helpful to know “the full extent of tax policy by then “.
But Treasury sources said the urgency of the economic situation had eased and the OBR’s statement and accompanying forecasts would benefit from a more accurate long-term fiscal picture that could be gathered in the next weeks “The situation has improved markedly,” an official said.