Britain’s new government said on Wednesday it would not reverse its vast tax cuts or reduce public spending as it sought to stand firm in the face of yet more turmoil in financial markets and concerns over its change in economic policy.
British financial markets have been under strain since Sept. 23 when Finance Minister Kwasi Kwarteng announced 45 billion pounds ($50 billion) of tax cuts, without saying how they would be paid for.
The Institute of Fiscal Studies think-tank has said the strategy will require 62 billion pounds of spending cuts or tax rises to stop the public debt growing – a daunting proposition after more than a decade of tight government spending.
British Prime Minister Liz Truss and Kwarteng say their tax cuts will boost economic growth and restore the public finances over the medium term.
Facing questions over how the government will fund its new economic policy, Truss said she would not cut public spending and her junior Treasury minister, Chris Philp, said the government would not reverse its tax cut plans.
“What we will make sure is that over the medium term the debt is falling, but we will do that not by cutting public spending but by making sure we spend public money well,” Truss told Parliament.
Asked if she was sticking to a pledge not to cut spending made during the Conservative leadership contest, she said: “Absolutely, absolutely.”
Her spokesperson later said that although public spending overall would rise, “there will be deeply difficult decisions to be taken given some of the global challenges we’re facing.”
The turmoil in bond markets has forced the Bank of England to intervene, buying long-dated gilts after a fire-sale by pension funds threatened U.K. financial stability.
Truss and Kwarteng have reversed one of their plans to ditch the top rate of income tax. They have also brought forward the date of a budget with details of fiscal forecasts to Oct. 31.