Treasury minister says ‘we’ll press ahead with tax cuts’ as Tory backlash grows amid market turmoil

People walk past a sign that shows the exchange rate at a bureau de change in London (AP)
People walk past a sign that shows the exchange rate at a bureau de change in London (AP)

A Treasury minister has insisted the Government is sticking to its controversial growth plan despite turmoil in financial markets and a growing Tory backlash.

Andrew Griffith spoke out as pressure grew on Kwasi Kwarteng after market fears over his economic policies - including a shock move to scrap the 45p income tax rate for the highest earners -announced in Friday’s mini-Budget - sent sterling crashing to an all-time low against the dollar.

“What the Chancellor and I are focused on is delivering that economic growth plan,” Mr Griffith said on Wednesday.

“We think they are the right plans because those plans make our economy competitive.”

He spoke out after the Bank of England launched an emergency UK government bond-buying programme to prevent borrowing costs from spiralling out of control and stave off a “material risk to UK financial stability”.

The Bank announced it was stepping in to buy up to £65 billion worth of government bonds - known as gilts - at an “urgent pace” after fears over the Government’s economic policies sent the pound tumbling and sparked a sell-off in the gilts market.

The market turmoil had forced pension funds to sell government bonds to head off worries over their solvency, but this was threatening to see them suffer severe losses and was creating a downward spiral in gilt prices as more were offloaded.

The Bank’s extraordinary intervention, responding directly to the Government’s tax-cutting strategy, piled further pressure on Liz Truss and Mr Kwarteng to defend a vision for the economy that has spooked markets and shocked most mainstream economists.

The scale of the crisis in the markets has led to unease in some quarters of the Tory party.

Simon Hoare, the chair of the Northern Ireland Select Committee, cited the former Conservative chancellor Norman Lamont during the sterling crisis of 1992 as he tweeted: “These are not circumstances beyond the control of Govt/Treasury. They were authored there. This inept madness cannot go on.”

Tory MP Robert Largan also came out to label as a “mistake” the decision to cut the top income tax rate when “the Government’s fiscal room for manoeuvre is so limited”.

The High Peak MP tweeted: “This is a deeply worrying time. Elected officials need to be honest about the choices we face & Government needs to take a pragmatic, fiscally responsible approach on the short-term support needed for people & long-term strategic thinking to ensure our energy security.”

Mel Stride, Conservative chairman of the Commons Treasury Committee, warned “there’s a lot of concern within the parliamentary party, there’s no doubt about that”.

He told Sky News: “I don’t want to speculate on the future of the Chancellor other than to say that I think where the party should be at the moment is really uniting at a time of economic crisis.

“The last thing we want now is a political crisis to compound that, and I think really focus on this issue of growth.”

Nick Timothy, who was chief of staff to former PM Theresa May, attacked the the Government’s plan.

“This is not conservatism,” he tweeted.

“And it is not what conservatives do. Ideology and unnecessary risks with market confidence are supposed to be what the other side does. We do need a different plan - but this is a disaster that should never have happened.”

Meanwhile Labour joined calls for Parliament, currently on a conference recess, to be recalled.

“The Government has clearly lost control of the economy,” Sir Keir Starmer told reporters in Liverpool.

The Labour leader said: “What the Government needs to do now is recall Parliament and abandon this budget before any more damage is done.”

In a bid to reduce future borrowing, the Government is set to ask Cabinet ministers to make efficiency savings in their departments’ existing budgets to help balance the public finances, according to the BBC.

It all comes just days before Tory MPs and thousands of members will descend upon Birmingham for Liz Truss’ first party conference as Prime Minister.

The Bank said: “Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.

“This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.

“In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses.”

The Treasury responded by reaffirming its commitment to the Bank of England’s independence and said the Government “will continue to work closely with the Bank in support of its financial stability and inflation objectives”.

The Bank said it would buy bonds “on whatever scale is necessary” in order to steady gilts after Chancellor Mr Kwarteng’s mini-budget last Friday spooked the markets with his package of tax cuts and increased borrowing.

It said the bond-buying programme would be temporary, starting from today until October 14.

“The purpose of these purchases will be to restore orderly market conditions,” the Bank said.

It also postponed next week’s planned kick-off of its £80 billion sale of gilts under the so-called quantitative tightening programme until October 31.

It follows days of intense pressure on defined benefit pension funds, which manage savings for millions of Britons, which had been using gilts in so-called liability-driven investment (LDI) strategies that many use to protect themselves against adverse moves in inflation.

Some £1.5 trillion is invested in their LDI strategies, of which £1 trillion is invested in bonds, and pension funds have been racing to sell gilts to meet calls for more collateral, but this has been forcing the already tumbling price of gilts lower.

Market angst in recent days has seen the Chancellor step up efforts to reassure the City about his economic plans after the International Monetary Fund (IMF) criticised the Government’s strategy.

At a meeting on Wednesday, Mr Kwarteng “underlined the government’s clear commitment to fiscal discipline” at a meeting with Bank of America, JP Morgan, Standard Chartered, Citi, UBS, Morgan Stanley and Bloomberg amongst others.

He also told the meeting that the plan announced on Friday would “expand the supply side of the economy through tax incentives and reforms, helping to deliver greater opportunities and bear down on inflation”, according to a Treasury readout.

Mortgage borrowers have been hit by a record overnight drop in the choice of home loan products as the economic fallout from Friday’s mini-budget continued.