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Mel Stride also said he would have to “think long and hard” if asked to vote to increase benefits in line with earnings rather than inflation (which would mean real terms cuts in benefits).
The Treasury Select Committee chairman told BBC Radio 4’s Today programme:
“I’d need to see all the details, I’d need to see it in the round, but I’d have to think long and hard about that.
“Because the last time the benefits were uprated, because of the way the mechanism works they’re uprated in April but they’re pegged against the previous September’s inflation, and the way it worked last time was the uprating was just 3.1% because inflation was low the previous September, but of course inflation was much higher than that (in April).
“So we’re coming off the back actually of a kind of quite a strong real-terms squeeze on those benefits already so I think that will be a really tough call to make.”
Mel Stride: This could mean smaller interest rate rise in November
Kwasi Kwarteng’s decision to accelerate the publication of his plan to cut Britain’s debt could lead the Bank of England to raise interest rates less sharply next month.
That’s the view of Conservative MP Mel Stride, the chair of the Treasury Committee, who argues:
Provided the OBR forecast and new fiscal targets provide reassurance then bringing these forward should calm markets more quickly and reduce the upward pressure on interest rates to the benefit of millions of people up and down the country.
“In particular getting the forecast out ahead of the MPC meeting on 3rd November might help to reassure our rate setters that they can go with a smaller base rate increase than would otherwise be the case.”
The Bank is due to set interest rates on November 3rd, and chief economist Huw Pill has already indicated there could be a ‘significant’ rise. The money markets are currently pricing in a rise of at least 1%.
Introduction: Sterling keeps recovering as Kwarteng brings forward debt cutting plan
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
The pound continues to recover from its mini-budget shock, thanks to a pair of u-turns from Kwasi Kwarteng.
The chancellor is bringing forward the announcement of his plan to bring down UK debts in the medium term, following pressure from the financial markets, economists and some MPs desperate to see how the ‘growth plan’, and large tax cuts, will be paid for.
Kwarteng, who was previously set to publish his medium-term fiscal plan alongside a set of economic forecasts on 23rd November , will now announce it sooner – likely by the end of the month.
Crucially for investors, we should also finally get full forecasts from Britain’s independent fiscal watchdog, the Office for Budget Responsibility (OBR).
News of the plan broke last night, just hours after Kwarteng ripped up the plan to scrap the 45p top tax rate for the highest earnings.
As one government source put it to Reuters: “OBR can move quicker, so can we”.
And so can the pound. And after hitting a record low last week around $1.035, it has now climbed above its mini-budget levels to around $1.135, the highest in almost two week.
The recovery for sterling has settled some nerves in the currency market.
NatWest Markets’ head of economics and markets strategy John Briggs said dropping the 45p tax band had been well-received by investors.
“The about-face … will not have a huge impact on the overall UK fiscal situation in our view.
“[but] Investors took it as a signal that the UK government could and is at least partially willing to walk back from its intentions that so disrupted markets over the past week.”
The Bank of England’s emergency intervention in the long-term borrowing gilt market is also helping calm nerves, although yesterday it only bought £22m of 30-year gilts and rejected £1.8bn of offers.
That looked like a signal to the markets that while the BoE was determined to maintain stability, they would not buy gilts at any price to keep borrowing costs low
Sending clear signal that this is a financial stability operation and they are not in the business of keeping gilt yields low for the sake of it
ie they are deliberately pushing back on the fiscal dominance narrative. Ball back in government’s court
— Rupert Harrison (@rbrharrison) October 3, 2022
Yeterday, the IFS thinktank warned that mammoth spending cuts would be needed to get borrowing back on track, if Kwarteng presses on with the rest of his tax-cutting mini-budget.
From a fiscal point of view important to remember cut to 45p rate was just about smallest part of the “mini budget”. What was a £45bn tax cutting package is now a £43bn package.
This U turn has, in itself, essentially no effect on fiscal sustainability.
— Paul Johnson (@PJTheEconomist) October 3, 2022
And a new political row is brewing, over whether the government will lift universal credit and other working age benefits in line with inflation.
Failure to do so would be ‘hostile and harmful’, the Joseph Rowntree Foundation warned last weekend, and deliver a devastating blow to millions of families on low incomes.
The agenda
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10am BST: Eurozone PPI index (showing how fast factory prices rose in August)
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2pm BST: IMF to release October 2022 Global Financial Stability Report Analytical Chapters 3
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3pm BST: US factory orders for August