Liz Truss has dismissed as “errant nonsense” claims yesterday’s Budget was a response to the consequences of her own decisions.
The former Tory prime minister said the Chancellor, Rachel Reeves, was a “disaster” and the Labour Government’s first economic statement was not a Budget for growth.
Choices made by Ms Reeves will see the overall tax burden reach a record 38.3% of gross domestic product (GDP) in 2027-28, the highest since 1948.
Despite Labour’s promises to protect “working people”, a £25.7billion increase in National Insurance (NI) contributions paid by employers is likely to reduce wages and lead to job losses.
Labour has claimed it was left with a £22bn “black hole” in the public finances, but it emerged on Thursday that the Office for Budget Responsibility (OBR) has uncovered £9.5bn in spending pressures.
On Keir Starmer claiming Ms Truss’s mini-Budget is to blame for the state of the public finances, the former prime minister said: “That is errant nonsense and even the Bank of England have admitted in a report they put out this year that two thirds of the market spike was down to their failure to regulate LDIs.
“The point is that I got blamed, and (former Chancellor) Kwasi Kwarteng got blamed, because the entire economic establishment – and by that I mean the Bank of England, I mean the Office of Budget Responsibilty – believe in these policies that generate low growth and stagnation.”
Liability-Driven Investment (LDI) is a financial product sold by asset managers to pension funds looking to ensure they have enough money to pay pensioners.
After Ms Truss’s mini-Budget, UK bond yields soared, leaving pension funds struggling to find cash in a short time. They sold gilts, putting downward pressure on the bond market. Pressure was eased when the Bank of England stepped in to buy £65billion worth of gilts.
Ms Truss’s fiscal statement in September 2022 had been blamed for sparking the meltdown in the bond markets, but Bank of England researchers found the sale of risky products by pension funds was also responsible for the crisis.
The former PM told GB News: “Yes, Rachel Reeves is a disaster. This Budget is particularly bad. But let’s be honest the direction of travel started a long time ago: higher taxes, higher regulation, more government spending, very high energy costs, no fracking, Net Zero. These all happened under the Conservative government.”
Ms Truss went on to accuse the Chancellor of putting her foot down on the accelerator of Britain’s “economic doom-loop”.
Asked if it is a Budget for growth, Ms Truss said: “Obviously, it’s not a government Budget for growth, it’s putting up taxes to an even higher level than they already are.
“It’s already at a 70-year high. It’s putting them up further. And even the OBR thinks that it’s going to be bad news for growth.”
She pointed to analysis by the Growth Commission which she said shows the Budget will reduce growth by 3.4% over the next five years.
Ms Truss said: “The biggest thing that will reduce growth is the massive hike in employers’ National Insurance… It will mean more businesses going overseas, which is very bad news for growth.”
The former prime minister accused Labour of lying after the NI rise, adding: “This is the opposite of what they said they would do, which is [to] increase growth.
“This is because they fundamentally don’t believe in free market capitalism. This is a very socialist Budget. This is saying the only way we’re going to generate growth is have the government spend more money.”
Asked on Thursday if he preferred Ms Reeves’ Budget or Ms Truss’ mini-budget, shadow Chancellor Jeremy Hunt said: “I actually like neither.
“I was the person who reversed the decisions made in the mini-Budget, but I will say this, at least Liz Truss wanted to grow the economy and said so explicitly.
“What we had yesterday is a Budget where the Government’s official forecaster said the impact would be lower growth. It will mean fewer jobs, lower investment.”
