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Sunak supporters express alarm at tax-cutting plan amid market turmoil

Prominent supporters of Rishi Sunak have issued stark warnings about the Government’s economic strategy, echoing some of the concerns the former chancellor made on the campaign trail ahead of Liz Truss’s victory in the Tory leadership contest.

While Boris Johnson’s former chancellor has remained silent in the face of the market turmoil triggered by Kwasi Kwarteng’s mini-budget, some of his old allies have publicly warned that the combination of major tax cuts and fresh borrowing will spell trouble for both the country and the Conservatives.

Mr Sunak had spent the vast majority of the campaign warning against Ms Truss’s promise of tax cuts, labelling them a “moral failure” at one stage and warning that some of his rival’s plans could worsen inflation.

Huw Merriman, chairman of the Transport Select Committee, issued his own broadside against the Truss administration late on Monday night, after a day in which the pound plunged to historic lows against the dollar and new polling indicated a promising lead for Labour.

Mini-budget
Chancellor Kwasi Kwarteng has come under pressure following a negative market reaction to his mini-budget (Dylan Martinez/PA)

“Those of us who backed Rishi Sunak lost the contest but this poll suggests that the victor is losing our voters with policies we warned against,” Mr Merriman tweeted.

“For the good of our country, and the livelihoods of everyone in our country, I still hope to be proven wrong.”

While free-marketeers within Tory ranks were buoyed by Mr Kwarteng’s £45 billion package of tax cuts set out on Friday, it had been labelled a “gamble” by some economists even before the chaos in the currency markets.

On Tuesday, Mel Stride, a former Sunak backer and the Conservative chairman of the Treasury Select Committee, warned that the plan was putting “in jeopardy” the Tories’ reputation for financial competency.

Appearing on BBC Radio 4’s World At One programme, he said: “I think we’re in an extremely difficult situation.

“There’s much talk understandably about where the pound is, but I think the bigger concern actually is the bond markets and the fact that yields now have spiked so high, and in fact on 10-year gilts we have higher yields or higher costs of borrowing for Government than is the case in Italy and Greece.

“So the country is in a very difficult position and what we’ve got to try and do now is get back that confidence from the markets, both on a monetary side, so that’s the Bank of England’s activities, and also the Government, the Treasury in particular, I think putting a lot more flesh on the bones of this dash for growth.

Mel Stride interview
Conservative chairman of the Treasury Select Committee Mel Stride (Stefan Rousseau/PA)

“Supply-side reforms that it’s looking at bringing forward to try and convince the markets that this push towards growth is something that is realistic.”

He added: “I think we are where we are, it’s not where I would be in the first instance… the bit that I do have some issues with, I have to say, is unfunded tax cuts of the kind of order that we’re looking at here and that really I think is the part that has spooked the markets, because those tax cuts have got to be paid for.”

Other senior Conservative figures had already expressed some concern about the unexpected package of measures.

Conservative former chancellor George Osborne urged the Government to end the “schizophrenic” policy of slashing taxes and increasing borrowing.

He told Channel 4 that “you can’t just borrow your way to a low-tax economy”.

“Fundamentally, the schizophrenia has to be resolved – you can’t have small-state taxes and big-state spending,” he said.

Former deputy prime minister Damian Green also told GB News “there’s more to conservatism than tax cutting” and said with a general election in two years things “have to happen quickly”.