Kylie MacLellan and Sarah Young
LONDON (Reuters) – British Prime Minister Liz Truss refused to rule out cutting welfare payments to fund her tax-cut growth plan by following a surge in inflation The next political rebellion against her economic plan.
Truss and her finance minister Kwasi Kwarteng are racing to figure out how they will pay over 40 billion pounds ($46 billion) tax cuts announced last month, sparking turmoil in financial markets as they did not say how they would be paid.
The government has been forced to scrap plans to scrap the top income tax rate to appease Conservative MPs who see it as a gift to the wealthy during the cost of living crisis.
Late on Monday, Kwarteng also agreed to release ahead of schedule the government’s more comprehensive debt relief plan, as well as forecasts for economic growth and public finances. Truss said the plan could include restrictions on benefit increases.
Asked if benefits would rise with inflation, which was 9.9% in August, Truss told the BBC: “We’re going to have to make a decision on how to lower the debt. Decision, because it is a certain percentage of GDP in the medium term.”
“We have to look at these issues holistically. We have to be fiscally responsible.”
Truss – elected by party members For the prime minister, but not the wider public – is seeking to lift the economy out of a decade of stagnant growth through a 1980-style tax cut and regulatory package, most funded by massive government borrowing.
But she did so at one of the toughest times for the economy, with governments having to spend tens of billions of pounds to subsidize energy bills and consumers reining in spending in anticipation of a difficult winter .
Investors are terrified of the government’s plan to hit the value of UK assets so badly that the Bank of England has had to intervene to prop up the market.
Damian Green, a former senior minister in Theresa May’s government and a centrist member of the Conservative Party, said he would oppose any effort to boost welfare based on average income rather than inflation.
Asked by the BBC whether the government could win a parliamentary vote in a parliamentary vote, he said: “Probably not. I think a lot of my colleagues would think that when you reach out to cut spending, pay welfare payments is not the solution method.”
Commons leader Penny Mordout also said it made sense to keep welfare payments in line with inflation. “That’s what I voted for before, and so do many of my colleagues,” she told TIME Radio.
Markets have stabilized since the Bank of England acted last week. Investors also took some comfort from the government’s decision not to remove the top tax rate and to bring forward the release date of the next fiscal plan from November .
UK government borrowing costs fell again in early trade on Tuesday, but remained higher than before Kwarteng’s September 23 announcement of a mini-budget with no period covered
The chair of the parliamentary finance committee, Mel Sride, has announced more comprehensive budget details ahead of time. He said it would help if they were released before the Bank of England’s next interest rate announcement on November 3.
($1=0.8782 pound sterling)