'Difficult decisions needed': Truss walks back on spending cuts pledge

Departments face uncertainty over their budgets amid economic crisis
PM Liz Truss. Photo: PA/Alamy

By Tevye Markson

13 Oct 2022

The prime minister has backpedalled after telling MPs there will be no public spending cuts in the wake of last month's mini-budget.

During prime minister’s questions on Wednesday, Liz Truss reaffirmed her commitment to not making public spending cuts to fund her controversial tax cuts and borrowing plans.

But Truss’s spokesperson later warned: “We are clear there will need to be difficult decisions to be taken given some of the global challenges we’re facing."

The PM had told MPs in the commons that she would “absolutely” keep her promise to maintain current spending levels.

Instead, she said the government would “make sure we spend public money well”.

She told MPs that public spending has risen considerably over the past 12 years, from £700bn in 2010 to £1 trillion now, and said this will continue. However, this is a nominal increase rather than a real-terms rise.

Truss’s spokesperson later added: “The prime minister was clear that government spending will continue to rise but beyond that it really is for the chancellor to come forward with anything on spending which he will do on the 31 [October].”

Kwasi Kwarteng has moved his medium-term fiscal plan up to the end of this month, from November, in a bid to quell market turmoil.

The Institute for Fiscal Studies has estimated that the government will need to make £60bn worth of spending cuts in order to pay for the government’s economic plan.

Truss may have to balance out the cost of helping households and businesses with energy bills with department spending cuts, according to reports. But the PM’s spokesperson refused to answer whether this was being considered.

Meanwhile, Treasury minister Chris Philip told the Commons yesterday that departments will still get real-terms increases in their budgets over the next few years.

He said: “I would point out to the house that [the 2021 Spending Review] spending limits do see real-terms increases over the three years. But we are going to be sticking with iron discipline to those spending limits, and not increasing them. And we will also show spending restraint in the years ahead. But showing spending restraint is different to real-terms cuts.”

“And we will also show spending restraint in the years ahead. But showing spending restraint is different to real-terms cuts,” he added.

In the SR21, the government said real-terms spending would increase for departments by 3.3% per year on average from 2021-22 to 2024-25.

However, soaring inflation has wiped out much of this estimated uplift, which was based on inflation averaging 2.3% over this parliament.

Meanwhile, Truss has reportedly been told by senior civil servants that she needs to do make more U-turns on last month’s so-called mini-budget, including raising corporation tax to restore market confidence.

Officials have warned the PM that her tax-tumbling budget is “no longer credible” without risking a financial crisis, according to The Times.

This morning, foreign secretary James Cleverly refused to rule out further U-turns to the plan and the government is under growing pressure to reverse some of its budget proposals.

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