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Richard Fuller, a Treasury minister, says he will look at the loan charge issue. He says all MPs who have met consituents affected will have been moved by their stories.
Kwarteng says the Office for Budget Responsibility is held in “wide respect” around the world. He says he views its independence as “sacrosanct”.
UPDATE: Steven Swinford from the Times says some of Kwarteng’s Tory colleagues think differently.
Kwasi Kwarteng says that the OBR commands ‘wide respect’, not only from him but around the World
But his cabinet colleagues are privately derisive about it, saying it should not be treated as if it is God & that it is frequently wrong https://t.co/KKzYsARMt0
— Steven Swinford (@Steven_Swinford) October 11, 2022
Mel Stride, the Tory chair of the Commons Treasury committee, says Kwarteng should only announce measurse in his fiscal plan at the end of the month if he is confident that he will be able to get them through the house.
Kwarteng says Stride is doing a “brilliant job” and he says Stride has offered “wise counsel”. (He does not sound 100% sincere at this point – Stride has been one of his strongest Tory critics.) Kwarteng says he will consult on his plans.
Steve Doughty (Lab) says the Bank of England has intervened three times in the markets now. His consituents are worried about their pensions, he says.
Kwasi Kwarteng says he speaks to the governor of the Bank frequently. The governor is managing a global situation “very effectively”.
Florence Eshalomi (Lab) says the suggestion that someone earning £30,000 a year can buy a home in London is insulting. She is referring to a Treasury tweet.
Griffith says he will write to Eshalomi about all the government is doing to help her constituents.
Andrew Griffith, a Treasury minister, says lifting the cap on banker’s bonuses is not about increasing their overall pay. The cap had the effect of lifting basic pay, he says.
Marsha de Cordova (Lab) says that is “nonsense’”.
Griffith says de Cordova has booked her place as a member of the anti-growth coalition.
He says in 1979 the top 1% of earners paid 10% of income tax. Now they pay 29%, he says.
Kevin Hollinrake (Con) asks for an assurance that infrastructure spending will not be cut.
Philp says the government wants to speed up spending on critical infrastructure.
Philp says the real risk comes not from having a growth plan, but from having no plan. And Labour has no plan for growth, he claims
Nick Smith (Lab) asks if the government will reconsider the case for a Swansea bay tidal barrage.
Chris Philp, the chief secretary to the Treasury, says when the government last looked at this, there were doubts about its value for money. But the government would look at a fresh proposal, he says.
Pat McFadden, the shadow chief secretary to the Treasury, says ministers will have wanted their mini-budget to be remembered, and studied in years to come. They have certainly achieved that, he says.
He says the Bank of England warned this morning of a “material risk” to financial stability. How much more will government borrowing costs as a result?
Griffith says the cost of borrowing is going up around the world. He says Labour should look at what is happening elsewhere, and abandon its “British exceptionalism”.
Alison Thewliss (SNP) asks what the governmnent is doing to tackle the chaos it has caused.
Griffith accuses the SNP of talking the country down.
Angela Eagle (Lab) says ministers should apologise for the chaos caused by the mini-budget. She claims there is a “Tory premium” on borrowing costs.
Andrew Griffith, a Treasury minister, says there is a division between the pro-growth an anti-growth parties in the Commons. He says Labour is on the side of workers going on strike, who also harm growth.
In response to a question from Alison Thewliss (SNP), Kwarteng says he will not take any lectures on growth from the SNP. He claims that from 2010 to 2019 growth was lower in Scotland than in the rest of the UK.
Chris Bryant (Lab) says the government has made borrowing harder for businesses. And the energy package for business will only last for six months. He says he has spoken to a business whose energy bill is going up from £100,000 to £450,000.
Kwarteng says the government is listening to business about what needs to happen next.
In the Commons, Treasury questions is starting.
Kwasi Kwarteng, the chancellor, is cheered as he rises to answer question number 1, which is about small and medium-sized enterprises. He says SMEs will benefit from his growth plan.
John Baron (Con) asks for more help for SMEs. Kwarteng says Baron should consider the help SMEs are already getting.
Kwasi Kwarteng to take questions from MPs as mini-budget turmoil continues
Kwasi Kwarteng is about to take questions from MPs for an hour. There are Treasury questions in the Commons roughly once a month and normally these are routine occasions that generate little news. But this is Kwarteng’s first Treasury questions as chancellor, and it takes place as he faces ongoing criticism over his mini-budget, which has done more immediate damage to the economy, in terms of its impact on borrowing costs and financial stability, than any intervention by a chancellor in living memory.
The session starts at 2.30pm, and there is a list of MPs down to ask a question on the order paper here. Kwarteng will be appearing with his junior ministers and he will leave some of the questions to them. But MPs will expect him to answer the main ones himself, such as question 3 (“What recent discussions he has had with the governor of the Bank of England on rising mortgage rates?”), or question 7 (about the OBR’s economic forecast).
IMF renews criticism of Kwarteng’s mini-budget
The International Monetary Fund has restated its criticism of the measures in the government’s mini-budget, my colleague Larry Elliott reports. The IMF used its prestigious world economic outlook (WEO) to criticise the scale of the stimulus provided by the chancellor and the blanket nature of the price cap on gas and electricity bills, Larry says. He goes on:
It said the UK was on course for a sizeable slowdown in growth from 3.6% this year to 0.3% in 2023 but said its forecasts had been made before Kwarteng delivered his mini-budget on 23 September.
“The fiscal package is expected to lift growth somewhat above the forecast in the near term, while complicating the fight against inflation,” the IMF said. Financial markets expect Threadneedle Street to raise interest rates – currently at 2.25% – by at least 0.75 percentage points at its next meeting in early November …
The IMF said finance ministries should not be at cross-purposes with central banks as they sought to quell price pressures.
“Without fiscal contraction elsewhere, and with tight supply, unfunded government spending increases or tax cuts will only push inflation up further and make monetary policymakers’ jobs harder,” it said.
Larry’s full story is here.
The IMF also criticised the mini-budget two weeks ago. On that occasion it urged the government to reconsider the tax cuts for high earners. Subsequently Kwarteng did abandon his plan to cut the 45% top rate of income tax, although what was decisive was probably opposition to the measure from Tory MPs (influenced by the reaction of the public), not the critique from the IMF.
Kwarteng won’t be able to calm financial markets unless he abandons unfunded tax cuts, says leading economist
A leading economist has said the government will need to abandon the unfunded tax cuts in the mini-budget if it wants to end the uncertainty in the financial markets that led to today’s emergency Bank of England intervention,
Mohamed El-Erian, president of Queen’s College, Cambridge, and chief economic adviser to Allianz, the German finance company, told the World at One that the financial system was currently on “very shaky ground”. He explained:
When the yields, the interest rates on government bonds, become disorderly, the mortgage market starts having problems, which is what we’ve experienced.
When the mortgage [market] starts having problems, people start worrying about their own economic future, so they start to change their behaviour.
And if you’re not careful, the average person will not just worry about whether their kids can be better off, they will worry about whether they can maintain their own standard of living. And then you can trigger a self-reinforcing economic decline that is very difficult to reverse.
Asked what the government should do, Erian said Kwasi Kwarteng should reverse the mini-budget. He said:
We need to go back to first principle. The major cause for this instability is the government announcing very large unfunded tax cuts. What they’ve gone back on only impacts about 5% of what they’ve announced. I see no alternative but the government saying we will not cut taxes now, we may cut them in future.
And the alternative that has been talked about, of spending cuts to compensate for tax cuts, that alternative actually would cause significant damage. And the markets will not swallow the alternative of spending cuts.
Erian said it was particularly important to reinstate the planned corporation tax increase, and abandon the plan for the early cut in the basis rate of income tax. When it was put to him that the chancellor could not survive such a big U-turn, he replied:
That’s a political judgment. What I can tell you is that [Kwarteng] will find it very difficult to operate in an environment in which he does not go back. Once you unleash what are called the bond vigilantes. Once you unleash the instability in the bond market, unless you contain it quickly, it creates damage.
Just look at what has happened for the last two weeks. The Bank of England intervened. It contradicted its own anti inflation policies in order to stabilise the market, and it didn’t take long for market disorder to return.
Asked about government claims that the tax cuts will stimulate growth, Erian said:
Very few people believe that the tax cuts in themselves will stimulate growth and they certainly will not stimulate growth in the midst of financial turmoil.
What will stimulate growth is the structural reforms that aim at higher productivity and aim at a more efficient economy, and those should stay. The government should not threaten them by pursuing something else that causes financial turmoil.
Asked what would happen if the government did not act before 31 October, when the medium-term fiscal plan is due to be published, he replied:
I say the markets will stay very nervous. Interest rates will remain high, mortgage markets will stay disrupted, and consumer and business confidence will work. And all that ultimately means not just lower actual growth, but lower potential growth. And that goes counter to what the government is trying to do.
