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Liz Truss’s ‘favourite’ economist says chancellor ‘took his eye off ball’ and ‘overstepped the mark’ with mini-budget | Politics News

Prime Minister Liz Truss’s external adviser on the economy has told Sky News that the chancellor had “taken his eye off the ball” and “overstepped the mark” with his mini-budget.

Gerard Lyons, who is often referred to as Ms Truss’s favourite economist, said Chancellor Kwasi Kwarteng failed to adequately prepare the financial markets ahead of his announcement.

Speaking on The Take With Sophy Ridge, Mr Lyons said: “The chancellor, whilst he had focused on the general public and on British businesses, he had not really prepared the financial markets fully.

“And I think he had taken his eye off the ball slightly, shall we say, in having not prepared the markets for what he was doing in the budget and I felt that he overstepped the mark last week.

“So it was a combination of all three factors – the febrile markets because of the global backdrop, the actions of the Bank of England last Thursday, but let’s be in no doubt, it was primarily the mini-budget last Friday that triggered this latest series of events.”

Asked if he had had any conversations with Ms Truss or her team, Mr Lyons said he had “made my thoughts known”. He said he was “highlighting in my writing… about the febrile state of the markets and the need to keep the markets onside”.

Pushed on whether they had taken his advice, he said: “Well, sometimes people listen, sometimes they don’t, but there were positives that came out of it. But as we saw last Friday, there was just not enough in line with what the markets had been prepped for and were expecting.”

Despite his remarks, Mr Lyons said the mini-budget was “very positive in many respects”.

He said it was “very much on a pro-growth agenda” which was needed to “break out of this low-growth phrase”.

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‘Mini-budget not what the markets were expecting’

Mr Lyons’s remarks about the chancellor failing to prepare the financial markets were contrasted by a minister who told deputy political editor Sam Coates it was “bulls***t” to say market movement was related to the mini-budget announcement.

And on The Take with Sophy Ridge, chief secretary to the Treasury Chris Philp denied the government had any responsibility and said there would be no change of course.

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Chief Sec bullish on tax cuts

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“Getting Britain’s economy growing is so important. Important to raise wages and important to pay the tax bills of the future,” he said.

Mr Philp suggested benefits may not be hiked in line with spiralling inflation. He said a commitment by former chancellor Rishi Sunak to uprate benefits in line with inflation was under consideration amid reports different government departments have been asked to draw up plans for efficiency savings.

Mr Philp told ITV’s Peston: “We are going to look for efficiencies wherever we can find them.”

But he said the Treasury would not commit to an expected uprating of benefits in line with inflation.

Pressed about the decision, he said: “I am not going to make policy commitments on live TV, it is going to be considered in the normal way, we will make a decision and it will be announced I am sure in the first instance to the House of Commons.”

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On Wednesday the Bank of England was forced to launch an emergency government bond-buying programme to prevent borrowing costs from spiralling out of control and stave off a “material risk to UK financial stability”.

The Bank will buy as many long-dated government bonds as needed between now and 14 October in a bid to stabilise financial markets.

The announcement had an immediate effect on the market, with data showing 30-year bond yields fell back to 4.3%, having risen to levels above 5% not seen since 2002, earlier on Wednesday. There were similar falls for 20-year yields.

Ms Truss is expected to face public questioning about her economic plans for the first time on Thursday as she tours regional BBC radio stations in a morning round of interviews. Neither the prime minister nor the chancellor were anywhere to be seen or heard on the economy on Wednesday.

Shadow chancellor Rachel Reeves attacks Liz Truss’s economic plan which ‘has been tested and has failed’ | Politics News

Labour’s shadow chancellor Rachel Reeves has said the UK Government is putting the economy in danger and attacked Prime Minister Liz Truss’s plan of “trickle-down economics” after the pound sank to a record low against the dollar.

Sterling slipped to a low of $1.0327 on Monday, before stabilising at around $1.07, following lows seen after Chancellor Kwasi Kwarteng unveiled his £45bn tax-slashing package in the mini-budget on Friday.

She described “trickle-down economics” as an idea that “has been tried, has been tested and has failed”, during a speech at Labour’s conference in Liverpool.

Politics live: Tories ‘already putting letters in’ as MPs fear Liz Truss will ‘crash economy’

“We are facing a national emergency,” she said. “Energy prices up the cost of the weekly food shop up, people’s wages not keeping up.

“On Friday, the chancellor had an opportunity to set out a serious response to the cost of living crisis. And he failed.”

Ms Reeves added: “The message from financial markets was clear on Friday, and this morning the message is even more stark – sterling is down [and] that means higher prices.”

Ms Reeves promised a new deal for working people, with strengthened rights, saying “minimum wage will be set at a level that reflects the real cost of living”.

Among her priorities, she said she would double the number of medical school places “so our NHS has the doctors that it needs” – and also double the number of district nurses and create 10,000 more nursing and midwife places every year.

‘Those at the top will pay their fair share’

The shadow chancellor said the new vacancies – which include 5,000 new health visitors – will be funded by bringing back the 45p income tax rate cut introduced by the government last week.

She said: “I can tell you, those at the top will pay their fair share.”

Labour said the tax cut will cost £6bn between now and 2026/2027 and benefit just 600,000 of the highest earners – each of whom will receive £10,000.

The party said that by reversing the cut, they can fund “one of the biggest expansions of the NHS workforce in history”.

The shadow chancellor described the Conservative Party’s record as “12 years of failure”, adding: “It’s time for a government that is on your side, and that government is a Labour government.”

She said: “The prime minister is content to let energy giants pocket the cash and leave your children and your grandchildren to pick up the tab.

“Under these Tories, those with the broadest shoulders carry the lightest load. And not by accident, but by choice.

“It is time for a government that is on your side.”

Pound sinks to record low against the dollar as chancellor and prime minister defend mini-budget | Business News

The pound has fallen to a record low against the dollar amid a fresh investor rush towards the US currency globally.

Sterling slipped by nearly 5% early on Monday to $1.0327 – building on fresh 1985 lows seen on Friday after UK chancellor Kwasi Kwarteng unveiled the biggest programme of tax cuts for 50 years.

The market delivered a verdict on whether the public finances would be sustainable following the £45bn tax-slashing package.

The pound plunged below its all-time low against the greenback – set in February 1985 – of $1.054 early on Monday in Asian trading, fuelling fears that parity was even possible.

Cost of living latest

It later stabilised around $1.05405 – still 3% below the previous session’s close and 7% down on where it had stood early on Friday morning before the mini-budget.

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The government’s growth plan was clearly the catalyst for Friday’s plunge but traders said it had since intensified the focus more widely as the dollar also shot up against a basket of other international currencies.

Joseph Capurso, head of international economics at Commonwealth Bank of Australia, wrote: “The poor situation in the UK exacerbates support for the USD, (which) can track higher again this week.

“If a sense of crisis about the world economy were to emerge, the USD could jump significantly.”

The euro fell to fresh 20-year lows versus the greenback amid growing recession fears linked to the war in Ukraine and in the wake of Italy’s elections that will see a far-right leader become the country’s new PM.

The Japanese yen was among other currencies in focus.

The trouble for both the UK and Europe more generally is that weak currencies raise dollar denominated import costs, potentially fuelling inflation further.

The UK also faces goods from the continent becoming more expensive because its value has also slipped sharply versus the euro – standing at €1.0948.

Naeem Aslam, chief market analyst at Avatrade, believed sterling would fall back again in European dealing.

“The reality is that the cost of living crisis is going to become even worse as the currency has fallen this much.

“We believe that the GBP/USD pair could easily reach parity this week, if not in the coming days, given the current momentum that we are experiencing in the market.

“In order to save the currency from a huge disaster, the Bank of England is now likely to increase the interest rate by a full percentage point, and it is highly possible that the Bank of England does this in an unprecedented fashion.

Both the chancellor and Prime Minister Liz Truss defended their programme.

In an interview with CNN on Sunday, Ms Truss rejected comparisons with US President Joe Biden’s approach after he said he was “sick and tired of trickle-down economics”.

She said: “We all need to decide what the tax rates are in our own country, but my view is we absolutely need to be incentivising growth at what is a very, very difficult time for the global economy.”

Asked whether she was “recklessly running up the deficit,” Ms Truss said: “I don’t really accept the premise of the question at all.”

Mr Kwarteng suggested his announcements were just the beginning of the government’s agenda to revive the UK’s stagnant economy.

“We’ve only been here 19 days. I want to see, over the next year, people retain more of their income because I believe that it’s the British people that are going to drive this economy,” he told the BBC’s Sunday With Laura Kuenssberg programme.

Read more: Mini-budget: PM going for broke in hope of winning big – but has she misjudged the public mood? | Beth Rigby

Mr Kwarteng is reportedly considering abolishing a charge for parents who earn more than £50,000 and claim child benefit, increasing the annual allowances on pension pots and a tax break for people who stay at home to care for children or loved ones.

If sterling fell to parity with the US dollar, it could trigger a rebellion among Tory backbenchers who could refuse to vote for the government’s finance bill or submit letters of no confidence, the Daily Telegraph reported, citing backers and critics of the prime minister.

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Truss and Kwarteng defend plans

Asked whether he was nervous about the dropping pound, falling stock markets and rising cost of government borrowing, Mr Kwarteng said: “We’ve got to have a much more front-footed approach to growth and that’s what my Friday statement was all about.

“I think that if we can get some of the reforms… if we get business back on its feet, we can get this country moving and we can grow our economy, and that’s what my focus is 100% about.”

He refused to comment on market movements, saying: “I’ve been focused on the longer term and the medium term, and I think it was absolutely necessary that we had a long-term growth plan.”

Great debate
Cost of living crisis: Britons on £45,000 will need help paying energy bills – not just those on benefits, chancellor says | UK News

Britons on £45,000 salaries will need government help to pay their energy bills – not just people on benefits, the chancellor has warned.

Nadhim Zahawi also told The Daily Telegraph that households must try and reduce their energy consumption, and that he fears gas prices could remain elevated for another two years.

Millions of households will see their energy bills rocket in the autumn after the price cap was hiked to £3,549 a year – a record increase of 80%.

While every household in the UK is being given a £400 rebate on their energy bills, Conservative leadership candidates Liz Truss and Rishi Sunak are being urged to take further action.

But there has been debate over whether additional support should be distributed widely or concentrated on Britons with the lowest incomes.

Mr Zahawi told the newspaper: “My concern is there are those who aren’t on benefits. If you’re a senior nurse or a senior teacher on £45,000 a year, you’re having your energy bills go up 80% and will probably rise even higher in the new year – it’s really hard.”

While he said Universal Credit is a “really effective way of targeting”, he said other ideas are being explored “to make sure we help those who really need the help”.

Mr Zahawi has reportedly drawn up a series of options for the next prime minister to consider – and despite calls for urgent action from the industry regulator Ofgem, Ms Truss has said it would not be “right” to announce her full plans for tackling the cost of living crisis until a new Conservative leader is named on 5 September.

The chancellor went on to warn that the UK is “in a national economic emergency”, adding: “This could go on for 18 months, two years, if Putin continues to use energy as a weapon.”

Read more:
Explainer: Everything you need to know about higher bills
Analysis: Even those who’ve done the right thing won’t escape impact of energy bills rise

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How will energy prices hit households?

Businesses fear rising energy bills

In other developments, 26% of small and medium-sized enterprises polled by YouGov have warned that their energy bills will be unsustainable within 12 months.

And of the companies already paying more for gas and electricity, 75% said they will have to pass these costs on to their customers.

What’s more, 5% of all businesses polled said that their current energy bills are already unaffordable.

Mr Zahawi told The Telegraph that the government is planning to offer support to small firms, and said there would be a “longer-term scarring effect on the economy” without it.

Proposals could include cutting VAT for particular sectors – returning to a policy that was in force during the coronavirus pandemic.

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Why high energy bills hit everything

Politicians feel the heat

In all, around 24 million households will be hit by the price spike.

Soaring wholesale gas costs – fuelled by Russia’s invasion of Ukraine – have driven the energy price cap increase, which is widely expected to spiral even further next year, with average bills forecast to hit £5,386 in January and £6,616 in April, according to analysts Cornwall Insight.

It ramps up the squeeze on households already wrestling with soaring food and fuel prices.

Sky News has found a third of households are already struggling to pay their energy bills, while Philippe Commaret, managing director of energy giant EDF, says half of UK households could be in fuel poverty in January.

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Ofgem chief executive Jonathan Brearley told Sky News that the price cap will be “devastating news” for many people.

Putting the increase into context, he added: “When I look at the prices for winter now for buying the gas, they are 15 times what they normally are. If that were to happen in petrol, that would mean it would cost £400 to £500 to fill our car.”

Boris Johnson has stressed he will leave major decisions on additional support to his successor.

Ahead of the increase, frontrunner Liz Truss said she would use an emergency budget to “ensure support is on its way” if she becomes prime minister.

Her rival Rishi Sunak has pledged more targeted support and to remove VAT from energy bills.

Labour has claimed that Ms Truss’s plans to combat the cost of living crisis would leave four million families “out in the cold” if further direct support is only rolled out to those on benefits.

Chancellor Nadhim Zahawi suggests people cut back on energy use but insists help is coming | Politics News

Chancellor Nadhim Zahawi has suggested that people cut back on their energy use – but said “help is coming” from the government to ease the burden of rising household bills.

Speaking to broadcasters, he admitted that the soaring energy price cap will cause “stress and anxiety for many people”, later adding: “The reality is that we should all look at our energy consumption.”

On Friday morning, energy regulator Ofgem announced the price cap for an average household will rise to £3,549 a year in October, £800 more than the forecast figure that was provided to then-chancellor Rishi Sunak in May.

Bills set to soar after price cap announcement – live updates

As calls for the government to act grow, Mr Zahawi said he is “working flat out” to develop more options to support people – but insisted it would be for the next prime minister to decide what support to deliver.

Either Liz Truss or Rishi Sunak will take up the role on 5 September.

“I know the energy price cap announcement this morning will cause stress and anxiety for many people, but help is coming with £400 off energy bills for all, the second instalment of a £650 payment for vulnerable households, and £300 for all pensioners,” the chancellor said.

“While Putin is driving up energy prices in revenge for our support of Ukraine’s brave struggle for freedom, I am working flat out to develop options for further support.

“This will mean the incoming prime minister can hit the ground running and deliver support to those who need it most, as soon as possible.”

Later Mr Zahawi admitted that the support pledged by the government is “not enough” and that ministers have “got to do more”.

“We need to make sure that this isn’t a sticking plaster, that for the long term we continue to help the most vulnerable who have no cushion. And that’s what I’m determined to do,” he said.

Mr Zahawi added that his aim is to make sure vulnerable UK households are “resilient through next year”.

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‘Zombie government is root of problem’

‘Truss and Sunak have no idea’

Sir Keir Starmer accused the government of being “missing in action” and said it is “unforgiveable” that no further intervention has been made by ministers to help households amid the cost of living crisis.

The Labour Party has set out a £29bn emergency plan to stop energy bills rising over the winter, which would be funded in part by an extension of the windfall tax on the bumper profits of oil and gas companies.

“What we’ve got is a fully costed, comprehensive plan for this winter, which will freeze those prices, that is welcome news for so many people worried sick today,” the Labour leader said.

“That is a fully costed plan. We haven’t got that from the government or anybody else.”

Meanwhile, Labour’s shadow chancellor Rachel Reeves told Sky News that the the price cap announcement “will strike fear” into families and pensioners and urged the government to back her party’s proposal to freeze energy bills for the winter.

“We cannot wait any longer to act. This is a national emergency,” she said.

Read more:
Everything you need to know about the price cap
Even those who’ve done the right thing won’t escape impact of massive rise in energy bills

Liberal Democrat leader Sir Ed Davey said the rise in the price cap is “nothing short of a catastrophe” for millions of households and that freezing prices is “the only option”.

“The only option is for energy prices to be frozen before these rises wreak havoc on our communities,” he said.

“Then we need a proper plan to be put in place to bring bills down next year.

“As millions suffer the Conservatives do nothing.

“No policy from the government, no plan from Liz Truss or Rishi Sunak. They have no idea how much pain these energy prices will cause our country. They are simply unfit to govern.”

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1 in 3 struggling to pay bills

What have the Tory leadership candidates said?

During the latest Conservative Party leadership hustings on Thursday, Ms Truss said she will use an emergency budget to “ensure support is on its way” amid soaring energy bills if she becomes prime minister.

Ms Truss has repeatedly said she favours tax cuts over handouts, leading to criticism her plans will benefit higher earners over people on low incomes.

Fellow leadership hopeful Mr Sunak has said he will offer direct support to households struggling to pay their bills, though he is yet to put a figure on how much help he is willing to give.

Speaking to broadcasters on Friday, Mr Sunak said he would “go further” in terms of support if he were to become the next prime minister.

“My priority is to protect the most vulnerable in society, including pensioners, and I want them to have certainty that extra help is coming – that is what I would put in place,” he said.

“Alternative plans, which are doing different things – borrowing tens of billions for permanent, unfunded tax cuts – don’t actually do anything to help those most in need, risk making inflation worse and putting our nation’s finances at risk as well.”

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Woman refusing to pay her energy bill

The cap will come into effect for around 24 million households in England, Scotland, and Wales on default energy tariffs on 1 October, and will remain in place until 31 December, when it will be adjusted again.

The 4.5 million pre-payment meter customers, who are often the most vulnerable and already in fuel poverty, will have an even more punishing increase, with their average annual bill set to go up to £3,608.

Sky News has found that a third of households are already struggling to pay their energy bills.