Senior Whitehall officials fear that Jeremy Hunt now risks going too far in cutting public spending and is expected to delay the Halloween declaration outlining its austerity plans, the Observer has been said.
Simon Case, the Cabinet Secretary, has reportedly been told of fears the Chancellor may go too far in cutting spending if he decides to go ahead with a extensive discount program.
Some at the Treasury are said to be among those who think it would be “irresponsible” to present the promised medium-term budget plan at the end of the month. This would come just days after the appointment of the new prime minister, risking further uncertainty over the stability of the proposals.
In particular, Whitehall has expressed concern over any move to delay infrastructure investment, seen as crucial to Britain’s ability to deliver economic growth in years to come. In the short term, there are fears that a sharp cut in social benefits could tip the UK into recession.
However, some of those concerned believe Hunt deliberately came out in favor of sweeping cuts to reassure markets and reduce Britain’s borrowing costs. Lower borrowing costs will actually help reduce the size of the fiscal hole that Hunt is required to fund.
“Some are worried that Hunt will go beyond what the Treasury is suggesting in terms of cuts,” a source said. “There is a danger that this will push the economy into a deeper recession or stop the chances of building long-term growth through capital investment in projects and infrastructure. Many think we don’t need to make the October 31 statement and that Jeremy is going a bit far.
After tax increases and spending cuts are being considered by Hunt and his Treasury team as they develop their plans. Some sources estimate that even with additional measures, there is still a budgetary hole to be filled of more than £ 30 billion. Measures under consideration include keeping foreign aid at 0.5% of GDP for longer than planned, freezing income tax thresholds and another major U-turn by sanctioning a broader one-off tax on energy companies. A promised increase in defense spending must also be reconsidered.
It comes after Hunt threw Liz Truss’ entire leadership speech in an extraordinary televised address on Monday. In it, he slashed the energy price freeze that the prime minister had repeatedly championed, even as his post as prime minister crumbled. Hunt used the address to declare that the basic 20p tax rate would remain indefinitely, brushing aside the proposed 1p cut and opting not to simply delay it. Changes to dividend taxes, a VAT-free purchase scheme and a freeze on some alcohol taxes have been dropped.
The statement effectively installed Hunt as the most powerful figure in government, as MPs plotted to oust Truss. There is now a debate within the Conservative Party over whether his chancellorship is guaranteed, whoever ultimately wins the leadership. Leadership candidate Penny Mordaunt has said she will keep Hunt in place as a reassuring figure for the markets. However, senior Tory sources said last night that it was not irreplaceable whether Johnson or Sunak won the leadership.
“The whole new social contract with the population, especially in the northeast and northwest [of England], relies on more investment in roads, hospitals and universities and everything else,” a party source said. “It’s literally the kind of Johnsonian program that Rishi, as chancellor, has been pushing for. People assume too much that we have to keep Hunt as chancellor. It’s obviously quite open for Rishi to move Hunt, not least because markets will be reassured by Rishi as leader, if it’s Boris he could appoint Rishi chancellor and no one would blink.
A Treasury source warned that under current stated plans the budget hole remained around £40billion and pointed out that there was already a windfall tax on fossil fuel producers, but did not rule out its expansion. “The Chancellor understands that whoever wins, savings will have to be made,” they said. “We are committed to keeping [the medium-term fiscal plan] October 31.
They said the Bank of England’s monetary policy committee was meeting to discuss interest rates on November 3, making the October 31 date important for the Chancellor’s statement.
