Liz Truss has admitted that the mini-budget delivered by her government last week did cause “disruption”, after it was followed by a series of economic shocks, including the pound falling to an all-time low against the dollar.
The prime minister said the government had a “clear plan” and acknowledged that the policies may be unpopular.
Announcements by Kwasi Kwarteng a week ago included a cut in income tax from 45p to 40p in the pound for the highest earners. Other taxpayers received a 1p cut in income tax and will get money from a U-turn in the rise in national insurance. The chancellor said they would all help to increase growth.
However, there was a strong market reaction to the package, which amounted to the biggest tax cuts in 50 years. The Bank of England subsequently spent billions of pounds buying government debt to shore up pensions schemes. It has also indicated that interest rates are like to rise significantly, which has led to jumps in mortgage rates and lenders pulling many deals.
Writing in the Sun, Truss failed to address the changes to the 45p rate, or the scrapping of bankers’ bonuses, which was also included in Kwarteng’s announcements. She said: “For too long we have been stuck debating how to divide up the economic pie, rather than grow the pie so everyone has a bigger slice.
“The status quo is not working. For too long we have been held back by low growth and high taxes. We need to get things done in this country more quickly.
“So I am going to do things differently. It involves difficult decisions and does involve disruption in the short term.
“Not everyone will like what we are doing, but I want to reassure the public that the government has a clear plan that I believe is right for the country.”
She insisted she had an “iron grip” on the UK’s finances and resisted calls to reverse the tax cuts.
She said: “I am determined to take a new course to unleash Britain’s potential, get our economy growing and deliver a better future for everyone.
“None of this will happen overnight but it’s the right thing to do. We will see it through.”
Earlier on Friday, she had told broadcasters: “I recognise there has been disruption but it was really, really important we were able to get help to families as soon as possible.
“What is important to me is that we get Britain’s economy back on track, that we keep taxes low, that we encourage investment into our country and that we get through these difficult times.”
Her comments were echoed by Kwarteng, who said the government must “stick to the plan”.
“Cutting taxes boosts growth. Reforming the economy to increase the amount of goods and services we produce lowers costs,” he wrote in the Telegraph.
“Not all the measures we announced last week will be universally popular. But we had to do something different. We had no other choice.”
He said new policies would be announced on 23 November on how minsters will reduce public debt and restore fiscal credibility, along with a forecast from the Office for Budget Responsibility. The prediction will be sent to the government on 7 October, but it will be six weeks before it is made public.
Meanwhile Simon Clarke, the levelling up secretary, , indicated there could be big cuts to welfare spending.
He told the Times: “My big concern in politics is that western Europe is just living in a fool’s paradise whereby we can be ever less productive relative to our peer, and yet still enjoy a very large welfare state and persist in thinking that the two are somehow compatible over the medium to long term. They’re not.
“We need to address that precisely because in the end, if we want those strong public services then we are going to have to pay for them. I think it is important that we look at a state which is extremely large, and look at how we can make sure that it is in full alignment with a lower tax economy.”
• This article was amended on 1 October 2022. The original version described Simon Clarke as chief secretary to the Treasury, a role he has not had since 6 September. He is now the secretary of state for levelling up, housing and communities.