Kwasi Kwarteng won't rule out new wave of austerity after massive U-turn on 45p tax cut

Chancellor of the Exchequer Kwasi Kwarteng speaking to the media ahead of the Conservative Party annual conference at the International Convention Centre in Birmingham. Picture date: Monday October 3, 2022.
Chancellor Kwasi Kwarteng at the Conservative Party annual conference in Birmingham on Monday. (PA)

Kwasi Kwarteng has refused to rule out austerity measures to pay for controversial tax cuts.

Kwarteng and prime minister Liz Truss abandoned their doomed plan to abolish the top rate of income tax for the highest earners.

The government had planned to scrap the 45% rate on earnings over £150,000 in a move to be paid for by increased borrowing.

But in a sensational U-turn, following fierce opposition from the public and politicians, Kwarteng announced on Monday that the plan had been ditched.

However, Kwarteng's budget last month also contained tens of billions of additional tax cuts, including: cancelling the planned increased in corporation tax; reversing the planned 1.25 percentage point rise in National Insurance contributions; bringing forward the 1p cut to the basic rate of income tax to April 2023 - one year earlier than planned; and major changes to stamp duty.

Minutes after the plan was scrapped, Kwarteng refused to rule out a new era of austerity to pay for these additional cuts.

Speaking from the Conservative Party conference in Birmingham, where he is due to give a speech later on Monday, he told BBC Radio 4’s Today programme: “You will see what our spending plans are in the medium-term fiscal plan but I’m not going to be drawn into that.”

And in a separate interview with LBC Radio, Kwarteng refused to rule out any more U-turns on his controversial mini-budget, which also scrapped rules which capped bankers' bonuses.

He would only say: "I'm totally focused on delivering the growth plan."

In the same interview, amid some confusion, Kwarteng indicated the government does not plan to introduce austerity measures.

"I don't think so at all," he said, when asked whether he thought there would be a return to austerity. "What we're trying to focus on is growing the pie, growing the economy, because without growth we won't get good public services.

"Without growth we won't have higher standards of living. Without growth we won't have enough funding for the NHS. So that's the focus of my chancellorship, that's what the prime minister's focused on and I think if we can grow this economy we can have a much more successful society."

Something that the chancellor did rule out, however, was more tax cuts, declining to repeat his previous pledge after his mini-budget that there is “more to come”.

He told the BBC: “There will be no tax cuts ahead of a budget.”

When asked if he planned to introduce cuts to public services, Kwarteng insisted the government was sticking to its comprehensive spending review (CSR) from last year, meaning it would not raise spending in line with inflation, which currently stands at just under 10%.

He said: “I think it’s a matter of good practice and really important that we stick within the envelope of the CSR."

Chancellor of the Exchequer Kwasi Kwarteng speaking to the media ahead of the Conservative Party annual conference at the International Convention Centre in Birmingham. Picture date: Monday October 3, 2022.
Chancellor Kwasi Kwarteng speaking to LBC Radio at the Tory conference in Birmingham. (PA)

At the weekend, levelling-up secretary Simon Clarke, one of Truss's allies, said the UK must reduce public spending to help fund the government's tax cuts.

In an interview with The Times, he criticised the "very large welfare state" and said Britain has been living in a "fool's paradise".

As recently as July, a leading economist warned that the UK is facing "austerity by stealth" because of soaring inflation.

Jonathan Portes, professor of economics at University College London, said the UK's public services were facing austerity by the back door because inflation meant money promised to schools and hospitals is not stretching as far.

On Monday, Labour MP John McDonnell said he feared "the Tories are now planning another severe round of austerity to pay for the tax cuts to corporations and increased borrowing costs caused by them".

Liberal democrat leader Sir Ed Davey said on Monday that Kwarteng should be sacked.

Read more: Mini-budget 'doesn't disproportionately benefit high earners' says Treasury minister

“I welcome this U-turn but the unfortunate truth is that this Conservative government is in complete chaos," he told Sky News.

“I don’t think the chancellor has the credibility to make all the changes that are needed and I think he has to go, and I think that would really restore confidence.

“We need a far more radical overhaul of the budget, we need it soon and we need it to be done in a transparent way, and I come to the conclusion, regrettably, that I think this chancellor can’t deliver that.”

Watch: Grant Shapps says scrapping 45p tax rate 'wrong move at wrong time'