Britain has lived in a “fool’s paradise” for too long and must reduce public spending to help to fund the government’s £45 billion worth of tax cuts, a senior cabinet minister has warned.
Simon Clarke, the levelling-up secretary and a key ally of Liz Truss, criticised the “very large welfare state” and said Whitehall departments would have to “trim the fat”.
Truss and her government are attempting to reassure the markets and their own MPs after the pound fell to a record low this week and the Bank of England was forced to make a £65 billion intervention in the bond market. Labour has taken a 33-point lead over the Tories in the polls, alarming many Conservative MPs.
Truss and her core team believe that the markets have overreacted and will recover once they have seen the full extent of her plans. They include significant cuts in public spending to shore up government finances.
The prime minister refused yesterday to rule out raising benefits at below the rate of inflation as part of government cost-saving measures, saying ministers would make an announcement in “due course”.
In an interview with The Times, Clarke, a member of the “quad” of most senior ministers, said Truss had no choice but to take radical action to limit public spending.
He said: “My big concern in politics is that western Europe is just living in a fool’s paradise whereby we can be ever less productive relative to our peers, and yet still enjoy a very large welfare state and persist in thinking that the two are somehow compatible over the medium to long term.
“They’re not. We need to address that precisely because in the end, if we want those strong public services then we are going to have to pay for them.”
Several Tory MPs, including a serving cabinet minister, told The Times that she would be forced to “back down” because the government had lost so much support over its budget. Tory MPs are in talks with Labour about how to overturn the budget, amid warnings that the Conservatives will lose the next election.
The prime minister rejected pressure yesterday to bring forward an independent assessment by the Office for Budget Responsibility of the impact of her tax cuts on public finances.
Clarke said that public spending must “align” with the government’s new tax plans. “I think it is important that we look at a state which is extremely large, and look at how we can make sure that it is in full alignment with a lower tax economy,” he said. “I do think it’s very hard to cut taxes if you don’t have the commensurate profile of spending and the supply side reform. If we’re adopting this plan, which I think is exciting and fundamentally addresses the competitiveness issue, the rest of the piece needs to move in tandem.
“We are privileged to deal with very large budgets. My experience . . . is that there is always something you can do to trim the fat.”
Tory MPs predicted that Truss would not have the support to push cuts to benefits through the Commons. One said: “We cannot be voting to cap benefits when we’re giving tax cuts to the highest earners.
Other MPs said they were concerned that higher borrowing costs — in part triggered by the government’s tax- cutting budget — could choke off the investment that Truss had put at the centre of her plans. “I know at least one business that has put their expansion plans on hold because they don’t know if they’ll be able to service the debt,” a former cabinet minister said.