Doubts cast over 31 October fiscal statement after Truss resignation

There are growing doubts over whether the fiscal statement will be delivered on 31 October following Liz Truss’s resignation as prime minister today after just 44 days in office, City A.M. understands.

Truss’s exit has triggered a second Tory leadership race this year that is expected to yield a new prime minister on 28 October, just three days before the scheduled announcement.

Treasury officials are thought to be working towards delivering the package on the existing date. 

However, the decision to delay or stick to the date is understood to ultimately be down to the new prime minister.

Current chancellor Jeremy Hunt has reversed nearly all of Truss’s botched £45bn tax cutting mini-budget to appease UK financial markets which were rocked by the scale of future government borrowing.

The pound slumped to a record low against the US dollar and government borrowing costs hit a 20 year high in the days after the mini-budget.

However, Hunt still needs to plug an around £40bn hole in the public finances caused by weaker tax revenues after the 1.25 percentage point national insurance hike was ditched and rising interest rates.

Hunt is thought to have been working on a package of tax rises or public spending cuts to repair the public finances.

If the fiscal statement does go ahead on 31 October under Hunt’s stewardship, the new prime minister would effectively enter office overseeing an economic agenda that they have had little chance to influence.

Markets are bracing for the Office for Budget Responsibility’s (OBR) assessment of the public finances and the UK’s growth outlook on the same day. 

Analysts slammed Truss and her former chancellor Kwasi Kwarteng for going ahead with the biggest round of tax cuts since the early 1970s on 23 September without an independent forecast from the OBR.

The Bank of England delivers its next rate decision just four days after the current scheduled fiscal statement. The central bank will also produce new economic forecasts.

If the fiscal statement is pushed back after the Bank’s rate announcement on 3 November, that would mean the monetary policy committee would have to vote on how high to raise borrowing costs without knowing the government’s tax and spending plans.

Governor Andrew Bailey and co will also publish new economic forecasts the same day, which would also be impaired if the fiscal statement is kicked back.