Kwasi Kwarteng will be called before parliament’s Treasury watchdog and asked to hand over independent growth forecasts, as its chairman said there is “not a very broad path” out of the current economic situation.
Mel Stride, a Conservative MP and chair of the Treasury committee, said Kwarteng was “very, very unlikely to reverse” the £45bn of unfunded permanent tax cuts he announced last Friday, even though that is an option. The alternative, he said, was to act quickly to “demonstrate to the markets that growth is realistic”. The third option would be deep cuts to public spending, but that would be difficult given the current pressure of inflation, Stride said.
“Potentially there is a path, but it’s not a very broad path, and there is a lot of work to be done. And I have to say this is a huge challenge,” he said in an interview with the Guardian.
Stride said setting out supply-side reforms would be crucial, and identified increasing immigration as the quickest way of boosting growth sustainably. He said: “We need to hear a lot from the government about how they are going to do things in the City and with regulation, infrastructure … to try to boost growth up to this trend level of 2.5%. Part of the problem with pulling those levers is that they take time to kick in. The one that interestingly would bite rather more quickly than the others would be immigration.”
Kwarteng is under increasing pressure over Friday’s fiscal event, which has led to a plunging pound and emergency action from the Bank of England to shore up the gilt market with £65bn.
Many Conservative MPs are furious at the situation and some think the chancellor should resign. But Stride, who was keen to be measured in his response, said this was not the time for “political ructions” at the same time as economic ones and called on colleagues to unify around “throwing the kitchen sink” at a plan for growth.
He said there was currently no need to recall parliament, as people will be “watching very closely what the prime minister and chancellor have to say at Conservative party conference”. But he said there might be a case for recall if there were “very acute problems” in the market in the coming days. “As of today, I would probably say no, but it’s not inconceivable that things could change,” he said.
The former leader of the House of Commons, who was Rishi Sunak’s campaign chief for the leadership, was one of the first to call over the summer for Office for Budget Responsibility (OBR) forecasts to be published alongside the mini-budget.
However, Kwarteng refused to commission new forecasts for the budget and declined to publish draft numbers updating the state of public finances and growth forecasts since the last set of figures in March. After a turbulent market reaction, the chancellor agreed to ask the OBR for new figures, which are expected to be published on 23 November, but he has still not made public the interim figures, which he was handed by the OBR on taking office.
Stride said on Thursday that the OBR had told him a full forecast of the impact of the budget would be ready by the end of October, and should be provided by then or earlier. He said he would write to Kwarteng to ask him to provide the existing OBR forecasts to the committee at the earliest opportunity “so we can make that public”.
He said the cross-party committee was also asking Kwarteng to appear before them “in the short term”.
“I think it’s important that he does appear before us. And I feel very strongly about this … Firstly, I think it it is important that everybody has an opportunity to ask difficult questions about what has happened, whether it could have been avoided, and does the basic plan and mission stack up? And I think from a more positive and constructive side … I think we should be looking at the supply-side issues with him.”
The Treasury committee chair said the mini-budget may not have happened at all if the OBR had been allowed to produce forecasts ahead of Friday’s event, as it would probably have shown the economy was already “underwater” in terms of its fiscal targets.
Stride said: “I suspect had an OBR forecast been ready to go, I would have doubted whether these measures would have been brought forward. Because I suspect that forecast would have showed a significant deterioration in the economy in general since the last forecast, which was on 23 March, in terms of inflation and growth.
“It would also have factored in the significant fiscal intervention that was in May. And I suspect that in terms of the existing fiscal targets, it would have shown that we were underwater, even before the measures from Friday were brought forward.
“We don’t know what [Kwarteng] has seen, and that is part of the problem.”
Stride also questioned whether some of the market jitters had been caused by signs that Kwarteng and Liz Truss had been preparing a shake-up of institutions that govern the world of finance, including the Bank of England, the Financial Conduct Authority, and Prudential Regulation Authority, having sacked Tom Scholar as permanent secretary of the Treasury.
“If you put all these things together, it rather suggests to me that there was at least one point in the trajectory of the new administration, [where there was] the sense that radical things needed to be done with our institutions – shaking the whole thing up. And I saw a lot of flashing red lights when I heard and saw these things, because now is the time for those institutions to be stable,” Stride said.