Kwarteng pledges Truss will be ‘fiscally responsible’ if named PM

Kwasi Kwarteng, who has been tipped as Britain’s next chancellor, has launched a pre-emptive bid to reassure markets that Liz Truss will not blow a hole in the public finances if, as widely expected, she is named as prime minister on Monday.

Kwarteng writes in the Financial Times that although there will need to be “some fiscal loosening”, the new administration would act in “a fiscally responsible way”. Truss’s allies admitted that the Treasury’s fiscal framework would be reviewed once the latest data had been assessed, “given the severity of the economic shocks we face”.

Kwarteng would assess the principal fiscal rule that debt should be falling as a share of national income in the third year of the forecast period to make sure it still worked for the economy, they said.

The Treasury is allowed to suspend its fiscal rules in the event of a “significant negative shock to the UK economy” under the charter for budget responsibility, its framework for sustainable public finances.

If elected Truss, the foreign secretary, has promised to immediately set out “action on energy bills and energy supply”.

Rishi Sunak, the former chancellor, has warned that his rival for the Tory leadership would “pour fuel on the fire” of inflation — which topped 10 per cent in July — and could unsettle markets by borrowing tens of billions of pounds for unfunded tax cuts.

But Kwarteng, current business secretary, said a Truss administration would be “bold” in promoting growth and he denounced the “stale old economic managerialism that has left us with a stagnating economy”.

He said a Truss government would cut taxes — reversing Sunak’s national insurance and corporation tax rises would cost about £30bn — and give short-term help to families and businesses facing spiralling energy bills.

“Given the severity of the crisis we face there will need to be some fiscal loosening to help people through the winter,” Kwarteng wrote. But he said Britain could afford to borrow more and that among G7 nations only Germany had a lower debt-to-GDP ratio.

He added: “Liz is committed to a lean state and, as the immediate shock subsides, we will work to reduce the debt-to-GDP ratio over time.”

Kwarteng and Truss have prioritised cutting taxes — which they claim will stimulate growth — over questions of how benefits are spread between the rich and the poor. Truss said it was wrong to see all economic policy through “the lens of redistribution”.

Truss told the BBC’s Laura Kuenssberg on Sunday that it was “fair” that her planned national insurance cut would save a person working full-time on the minimum wage £59 a year, while a person earning £100,000 would save more than £1,000.

Truss said rich people paid more taxes and argued that cutting taxes would increase growth and benefit everyone. Kwarteng wrote in the FT: “It is about growing the size of the UK economy, not burying our heads in a redistributive fight over what is left.”

David Gauke, a former Tory Treasury minister, said this approach carried “very great risks” at a time when families on low incomes, many of whom voted Conservative for the first time in 2019, faced a cost of living crisis.

If elected on Monday, Truss will announce her new cabinet on Tuesday, after meeting the Queen at her Balmoral estate in Scotland. James Cleverly, the Foreign Office minister, is expected by Truss’s team to be promoted to foreign secretary, while Suella Braverman, the attorney-general, is tipped to become home secretary.

Jacob Rees-Mogg, another key Truss supporter, is expected by her team to be appointed business secretary, with responsibility for energy.

The results of the seven-week contest to find a new Conservative leader will be announced at lunchtime on Monday. Boris Johnson will make a farewell statement in Downing Street on Tuesday morning before flying to Balmoral to tender his resignation.

Writing in the Sunday Telegraph, Truss repeated her promise of tax cuts for businesses and households but also said: “I will take decisive action to ensure families and businesses can get through this winter and the next.”

Surging inflation, the rising cost of government debt and Truss’s promises on tax cuts and defence spending will create a £60bn hole in the public finances by the middle of the decade, according to FT calculations.

Truss said she wanted to move away from an approach of “sticking plasters and kicking the can down the road” and her allies have talked about reforms to the energy market to lessen the impact on future crises.