UK Chancellor Jeremy Hunt has pushed back the date of his long-awaited debt-cutting plan from October 31 to November 17, as calmer markets gave the government some economic room.
Rishi Sunak, the new prime minister, has paved the way for painful cuts and tax rises to plug a £30bn-£40bn tax hole, including the possibility of real-terms cuts to pensions and benefits .
Hunt announced on Wednesday morning that he would make a full autumn statement, including official forecasts, on November 17 and warned of difficult decisions ahead.
City traders say Sunak and Hunt have created a “boredom dividend” by calming markets after the chaos of Liz Truss’s short tenure, which has led to a reduction in government borrowing costs.
This means that the fiscal gap will be smaller than previously thought. However, the scale of the challenge is still huge: Sunak warned on Tuesday that the country was facing “a deep economic crisis”.
On Wednesday, Sunak refused to commit to increasing benefits in line with inflation, while Downing Street refused to say whether the “triple lock” on pensions contained in the 2019 Tory manifesto remained sacrosanct.
Last week Truss said the triple lock, under which the state pension is increased each April in line with the higher of inflation, wage growth or 2.5 per cent, would remain in place.
However, Sunak insisted, in his debut at Prime Minister’s Question Time: “I will always protect the most vulnerable.” Pensions will rise by 10.1 percent next April, in line with September’s inflation rate, unless Sunak changes course.
The biggest savings for Hunt could be achieved by limiting spending on public services in the period after current spending plans expire in 2024-25. Labor has said this would mean years of austerity.
If the government kept real spending increases, it could still save around £10bn a year by 2027-28, rising to £20bn a year if it opted for flat spending plans in real terms.
Government borrowing costs rose slightly in response to the announcement that the debt relief plan was being delayed, before a global rally in bonds pushed them lower again. The yield on 30-year gilts rose as much as 0.11 percentage point before falling back to 3.67 percent, little changed on the day.
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The returns remain well below levels reached on Friday, before Sunak emerged as the only candidate to replace Liz Truss as prime minister.
Hunt allies said delaying the fiscal plan, now officially a fall statement, would allow the independent Office for Budget Responsibility to reflect the stability of bond markets when making its forecasts about the finances public
The OBR said on Wednesday it would have had to use financial market and energy price data from “early to mid-October” if the fiscal statement had been on 31 October.
This would have significantly increased the forecasts of public debt interest costs because the period covered dates of great tension in the gilt market.
However, the new date will complicate the Bank of England’s interest rate decision, scheduled for November 3. BoE Governor Andrew Bailey said the central bank would be “flying blind” if it had to set interest rates before knowing the government’s budget plans.
November 17 is the fourth date given by the government for the crucial medium-term fiscal plan, which aims to establish a five-year program to control debt.
Meanwhile, Robert Stheeman, responsible for managing bond sales on behalf of the government, told MPs that the chaos in the gold market following last month’s “mini” budget was “without a doubt” the result of factors own production
Truss and Kwasi Kwarteng, the former chancellor, had claimed their economic policies had been sidetracked by global events, although they admitted they had not prepared the ground for their radical £45bn tax cut plan.