Rishi Sunak is reconsidering tax rises and major public spending cuts after a dramatic improvement in the state of the nation’s finances.
The new Prime Minister on Wednesday delayed the medium term fiscal statement from next Monday to November 17 to allow Jeremy Hunt to rework the plans.
An analysis to be published on Thursday shows that the fortnight delay is expected to shrink the size of the black hole in the public finances by up to £15 billion.
With the interest rate paid on government gilts falling rapidly - and the international gas price reducing - there is growing confidence in Downing Street that more minor changes to the public finances may be necessary.
Mr Hunt had previously warned that “some taxes will go up” while others “will not be cut as quickly as people want”, with high earners to be reportedly targeted with up to £20 billion of tax rises. Whitehall departments have already been told to find savings of from 10 to 15pc each.
But the improving economic picture means Mr Sunak is now examining whether some of the sweeping measures drawn up for the Hallowe'en statement can now be watered down or cancelled altogether.
The delay means that the Bank of England will now set interest rates on November 3 without knowing the new taxation and spending policy.
Fiscal statement delay to save Treasury up to £15bn
On Wednesday Mr Sunak told his new Cabinet that the Bank must take the lead on “returning inflation to target”, adding that he had discussed his plans with Governor Andrew Bailey ahead of next week’s decision.
Analysis by the Resolution Foundation think tank said that the fortnight delay of the fiscal statement would save the Treasury between £10 billion and £15 billion. Ministers had been facing an estimated black hole in the Treasury’s finances of around £35 billion.
However, sizeable spending savings and extra revenue will still need to be found, with Downing Street on Wednesday night declining to guarantee a string of past promises.
The pensions triple lock, which rules the state pension must rise by the highest of 2.5 per cent, earnings or inflation, is under threat, with Number 10 refusing to promise it will stay.
There could also be a real-terms cut in benefits next year after Mr Sunak declined to guarantee that Universal Credit would rise in line with prices.
No 10 would not commit to implementing Mr Sunak’s leadership promise of cutting the basic rate of income tax from 20 per cent to 19 per cent in 2024 and eventually down to 16 per cent.
Ms Truss’s flagship policy of spending three per cent of GDP on defence by 2030 has gone. The fracking ban will also return - though household energy bills will stay frozen until April.
Prime Minister's first gathering of new Cabinet
Addressing the first full gathering of his newly appointed Cabinet on Wednesday, Mr Sunak underscored the challenging economic times ahead.
A No 10 spokesman said: “The Prime Minister told the Cabinet that economic stability and fiscal sustainability would be at the heart of this Government’s mission.
“He reinforced that this would require some very difficult decisions, but the Government would also act with compassion, protecting the most vulnerable and would continue to seek long-term growth.”
Moments after the gathering, Mr Hunt announced that the so-called medium-term fiscal plan, which had been due on Hallowe'en, would be pushed back by a fortnight.
Mr Hunt said: “I want to confirm that it will demonstrate debt falling over the medium term which is really important for people to understand.
"But it's also extremely important that that statement is based on the most accurate possible economic forecasts and forecasts of public finances.”
The move was taken so that Mr Sunak could shape the economic plan Mr Hunt had been working on, according to Treasury sources. It would have been too late to make changes by Monday.
The delay also means that the Office of Budget Responsibility’s forecasts for the nation’s finances will be based on more recent economic conditions.
That means assessments will not be based on the period of intense market volatility after Ms Truss’s mini-Budget which saw the cost of government borrowing soar.
Gas prices have also halved in international markets, crashing from €220 (£190) per megawatt hour in early September 8 to €100 now, potentially easing the cost of the energy bills free
An OBR spokesman said: “Had our forecast been published on October 31, it would have been based on market determinants, including for gas prices and gilt yields, from the early to middle part of October.
“Postponing the date to November 17 means that we will take a later window for these market prices.”
Questions over Braverman reappointment
The improving economic picture put less pressure on Mr Sunak and Mr Hunt to cut deeply to get debt falling in the medium term - the target they have set themselves to regain market confidence.
Mr Sunak, in his first full day in office, also had his first Prime Minister’s Questions against Sir Keir Starmer, the Labour leader now on to the third Tory leader of his tenure.
Sir Keir used his opening question to probe whether officials raised concerns over reappointing Suella Braverman as Home Secretary six days after she resigned for leaking - something not denied.
The Telegraph understands Mr Sunak dismissed concerns raised by Whitehall’s ethics body about the appointment and pushed ahead nonetheless.
Mr Sunak did receive full vocal support from the Tory benches during the exchanges, offering No 10 a glimpse of hope as the attempt to reunite a fractious parliamentary party.
Throughout the day, both in Mr Sunak’s Commons answers and in a Downing Street briefing with journalists, categorical promises on taxation and spending policy were avoided, with decisions pending.
It means that the fate of the triple local, real-terms increases to benefits and promised tax cuts hang in the balance, with answers not expected to be revealed until November 17.
However, at points Mr Sunak did offer insights into his thinking.
Asked whether he will increase benefits in line with prices, Mr Sunak said: “My record on this is clear. Through the difficult times that we faced in this country through Covid I always acted in a way to protect the most vulnerable.
“That's because it is the right thing to do and those are the values of our compassionate party, and I can absolutely reassure him and give him that commitment that we will continue to act like that in the weeks ahead.”
His record as chancellor was to link benefits to inflation, meaning his comments were read as an indication he hoped to do that again. But no categorical promise was delivered.
