How significant is Liz Truss’s pledge on public spending cuts? | Sam Coates

Published

2 years ago

October 12, 2022

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Liz Truss has said publicly what Downing Street has said privately for some time: that there will “absolutely” be no public spending cuts.

The prime minister wants to be seen sticking to the promise she made during the Tory leadership campaign. It drew gasps in the chamber and sounds like a big deal: but it’s complicated and some caution is required.

This is a more wide-ranging commitment than the line from the Treasury for the last couple of weeks that the chancellor, Kwasi Kwarteng, would stick to the three-year spending plans set out under Boris Johnson’s government in 2021.

However there is much public spending outside of Whitehall departmental totals presumed to be in the firing line, as this government works out how to credibly fill the black hole created by the mini-budget with its tax cuts and energy price plan. And post-2025 spending settlements are clearly under fire.

Politics latest: PM pledges not to cut public spending and says ‘last thing’ country needs is a general election

This does represent another, tougher self-imposed limit to her options. But how significant is it?

It’s very important to remember that much of the debate is not necessarily about cuts in absolute terms, but about growing more slowly.

That’s the nub of the very public debate the cabinet has been having about whether to uprate – or increase – benefits by wages or inflation.

In either scenario, the budget grows, just more slowly by the former than the latter.

The challenge is that inflation – at recent record highs – will eat into these increasing budgets, in a way that will feel like public spending cuts. Often spending review settlements are presented once inflation is taken into account.

This government can keep the absolute figure of spending level for years, but each pound available will go less far.

It’s also unclear how you make the tens of billions needed to cover the additional borrowing that Ms Truss’s mini-budget created.

But there’s much we don’t know about what Mr Kwarteng will need to do on 31 October: we don’t know the actual size of the black hole (could it be materially less than the £60bn+ forecast by the IFS?), could the renewable energy “windfall tax”-style deal raise tens of billions, could other Treasury “tricks” – like raising the state pension age and increasing future migration programmes – also flatter the public finances?

There’s an awful lot we don’t know.

It’s also important to remember that if you’ve just spent £200bn more on public spending in the first month of the Truss government it’s actually quite easy to say public spending won’t dip below the starting baseline – presumably the day she came to government – in future.

So the PM may well be telling people that the government isn’t shrinking spending but it might not feel like that to voters.

World

Stock markets slump for second day running after Trump announces tariffs – in worst day for indexes since COVID

Published

8 hours ago

April 4, 2025

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Stock markets slump for second day running after Trump announces tariffs - in worst day for indexes since COVID

Worldwide stock markets have plummeted for the second day running as the fallout from Donald Trump’s global tariffs continues.

While European and Asian markets suffered notable falls, American indexes were the worst hit, with Wall Street closing to a sea of red on Friday following Thursday’s rout – the worst day in US markets since the COVID-19 pandemic.

As it happened: Worst week’s trading in five years

All three of the US’s major indexes were down by more than 5% at market close; The Dow Jones Industrial Average plummeted 5.5%, the S&P 500 was 5.97% lower, and the Nasdaq Composite slipped 5.82%.

The Nasdaq was also 22% below its record-high set in December, which indicates a bear market.

Read more: What’s a bear market?

Ever since the US president announced the tariffs on Wednesday evening, analysts estimate that around $4.9trn (£3.8trn) has been wiped off the value of the global stock market.

Mr Trump has remained unapologetic as the markets struggle, posting in all-caps on Truth Social before the markets closed that “only the weak will fail”.

The UK’s leading stock market, the FTSE 100, also suffered its worst daily drop in more than five years, closing 4.95% down, a level not seen since March 2020.

And the Japanese exchange Nikkei 225 dropped by 2.75% at end of trading, down 20% from its recent peak in July last year.

Trump holds trade deal talks – reports

It comes as a source told CNN that Mr Trump has been in discussions with Vietnamese, Indian and Israeli representatives to negotiate bespoke trade deals that could alleviate proposed tariffs on those countries before a deadline next week.

The source told the US broadcaster the talks were being held in advance of the reciprocal levies going into effect next week.

Vietnam faced one of the highest reciprocal tariffs announced by the US president this week, with 46% rates on imports. Israeli imports face a 17% rate, and Indian goods will be subject to 26% tariffs.

China – hit with 34% tariffs on imported goods – has also announced it will issue its own levy of the same rate on US imports.

Mr Trump said China “played it wrong” and “panicked – the one thing they cannot afford to do” in another all-caps Truth Social post earlier on Friday.

Later, on Air Force One, the US president told reporters that “the beauty” of the tariffs is that they allow for negotiations, referencing talks with Chinese company ByteDance on the sale of social media app TikTok.

He said: “We have a situation with TikTok where China will probably say, ‘We’ll approve a deal, but will you do something on the tariffs?’

“The tariffs give us great power to negotiate. They always have.”

World

Financial markets were always going to respond to Trump tariffs but they’re also battling with another problem

Published

12 hours ago

April 4, 2025

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Financial markets were always going to respond to Trump tariffs but they're also battling with another problem

Global financial markets gave a clear vote of no-confidence in President Trump’s economic policy.

The damage it will do is obvious: costs for companies will rise, hitting their earnings.

The consequences will ripple throughout the global economy, with economists now raising their expectations for a recession, not only in the US, but across the world.

Tariffs latest: FTSE 100 suffers biggest daily drop since COVID

Financial investors had been gradually re-calibrating their expectations of Donald Trump over the past few months.

Hopes that his actions may not match his rhetoric were dashed on Wednesday as he imposed sweeping tariffs on the US’ trading partners, ratcheting up protectionism to a level not seen in more than a century.

Markets were always going to respond to that but they are also battling with another problem: the lack of certainty when it comes to Trump.

He is a capricious figure and we can only guess his next move. Will he row back? How far is he willing to negotiate and offer concessions?

These are massive unknowns, which are piled on to uncertainty about how countries will respond.

China has already retaliated and Europe has indicated it will go further.

That will compound the problems for the global economy and undoubtedly send shivers through the markets.

Much is yet to be determined, but if there’s one thing markets hate, it’s uncertainty.

World

Court confirms sacking of South Korean president who declared martial law

Published

1 day ago

April 4, 2025

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Court confirms sacking of South Korean president who declared martial law

South Korea’s constitutional court has confirmed the dismissal of President Yoon Suk Yeol, who was impeached in December after declaring martial law.

His decision to send troops onto the streets led to the country’s worst political crisis in decades.

The court ruled to uphold the impeachment saying the conservative leader “violated his duty as commander-in-chief by mobilising troops” when he declared martial law.

The president was also said to have taken actions “beyond the powers provided in the constitution”.

Supporters and opponents of the president gathered in their thousands in central Seoul as they awaited the ruling.

The 64-year-old shocked MPs, the public and international allies in early December when he declared martial law, meaning all existing laws regarding civilians were suspended in place of military law.

After suddenly declaring martial law, Mr Yoon sent hundreds of soldiers and police officers to the National Assembly.

He has argued that he sought to maintain order, but some senior military and police officers sent there have told hearings and investigators that Mr Yoon ordered them to drag out politicians to prevent an assembly vote on his decree.

His presidential powers were suspended when the opposition-dominated assembly voted to impeach him on 14 December, accusing him of rebellion.

The unanimous verdict to uphold parliament’s impeachment and remove Mr Yoon from office required the support of at least six of the court’s eight justices.

South Korea must hold a national election within two months to find a new leader.

Lee Jae-myung, leader of the main liberal opposition Democratic Party, is the early favourite to become the country’s next president, according to surveys.