Kwasi Kwarteng in Washington DC for talks with IMF as Liz Truss faces revolt at home
As Liz Truss faces open revolt in her party over her planned tax cuts, her chancellor will today try to reassure the IMF that everything is under control.
Ministers continue to be under pressure for the market chaos that erupted after the government announced its £45bn package of unfunded tax cuts last month.
The prime minister and Kwasi Kwarteng, the chancellor, have said the cuts are needed to get Britain’s economy growing again, as data published on Wednesday suggested the country is heading for recession.
Mr Kwarteng will meet with IMF leaders in Washington DC on Thursday, after the institution’s chief economist said tax cuts threatened to cause “problems” for the UK economy.
The IMF has said Britain’s priority should be tackling inflation rather than adding to the price problem through tax giveaways to achieve economic growth.
The chancellor toured the IMF’s offices and was shown art on Wednesday before talks today.
Back at home, Ms Truss is facing growing calls for another policy reversal as her MPs see more and more polls threatening a Labour landslide at the next election.
The prime minister and her chancellor have already been forced into reversing one of the many tax-cutting policies within their plan – scrapping the 45p tax rate for the highest earners.
In her first PMQs since the mini-budget last month, she pledged not to cut public spending to balance the books – despite a leading economics-focused think tank warning the government is billions short of the sums needed.
Liz Truss promised she would not cut public spending
Read more:
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The Institute for Fiscal Studies has warned that the government would have to cut spending or raise taxes by £62bn if it is to stabilise or reduce the national debt as promised.
Mel Stride, the Tory chairman of the Commons Treasury Committee, said that given Ms Truss’s commitments to protect public spending, there was a question over whether any plan that did not include “at least some element of further row back” on the tax-slashing package can reassure investors.
“Credibility might now be swinging towards evidence of a clear change in tack rather than just coming up with other measures that try to square the fiscal circle,” Mr Stride said.
David Davis, the Tory former minister, called the mini-budget a “maxi-shambles” and suggested reversing some of the tax cuts would allow Ms Truss and Mr Kwarteng to avert leadership challenges for a few months.
Jacob Rees-Mogg, one of the prime minister’s biggest supporters, has suggested the government could ignore gloomy Office for Budget Responsibility forecasts if they predict low growth and rising debt.
The business secretary told ITV’s Peston that “its record of forecasting accurately hasn’t been enormously good” and that the chancellor could draw on “other sources of information”.
A trio of property giants has lodged a protest against a radical financial restructuring that will see Cineworld imposing steep rent cuts on its landlords.
Sky News has learnt that British Land, Landsec and Legal & General Investment Management all voted against the cinema operator’s restructuring plan this week.
Cineworld has confirmed plans to close six of its UK multiplexes, but documents circulated to creditors show almost 50 others are in categories requiring landlords to agree to revised rent deals in order to ensure their long-term viability.
Although they carry significant influence in the commercial property sector, the trio’s protest will have no impact on the outcome of the company’s proposals, since its owners are now also among its largest creditors, meaning they can effectively force the deal through.
According to documents sent to creditors during the summer, 33 sites – categorised as Class B – “require a reduction of rent to ERV [Estimated Rental Value] Rent in order to place the sites on a viable long-term footing”.
A further 38 of Cineworld’s cinemas would be unaffected, while another 16 Class C1 and C2 leases require reductions to either turnover rent or zero rent in order to render them financially viable.
The documents added that the company did not have sufficient funding to meet a quarterly rent bill on June 24 of £15.9m.
“The UK group did not have sufficient liquidity to make the June 2024 Rent Payment and required further funding from the US Group to meet this liquidity need.
“Absent this funding, the UK Group would have been insolvent on a cashflow basis.”
Cineworld is being advised by AlixPartners.
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Other cinema operators are now poised to step in to take over some of Cineworld’s sites.
The company trades from more than 100 locations in Britain, including at the Picturehouse chain, and employs thousands of people.
Cineworld grew under the leadership of the Greidinger family into a global giant of the industry, acquiring chains including Regal in the US in 2018 and the British company of the same name four years earlier.
Its multibillion-dollar debt mountain led it into crisis, though, and forced the company into Chapter 11 bankruptcy protection in 2022.
It delisted from the London Stock Exchange last August, having seen its share price collapse amid fears for its survival.
Cineworld also operates in central and Eastern Europe, Israel and the US.
A long-running measure of consumer confidence has slumped to levels last seen at the start of the year following warnings of “tough choices” ahead in the looming budget.
GfK’s Consumer Confidence Index fell seven points in September to minus 20, with significant drops in predictions for personal finances and the general economy over the coming year.
The report’s authors suggested it was “not encouraging news” for the new government, which has made growing the economy its top priority.
Money latest: Millions already buying mince pies ahead of Christmas
But within weeks of taking the post of chancellor, Rachel Reeves – followed by prime minister Sir Keir Starmer – moved to warn of a legacy £22bn “black hole” in the public finances and said it would result in a painful budget on 30 October.
Among measures already taken include cuts to winter fuel payments, leaving up to 10 million pensioners up to £300 worse off, and inflation-busting public sector pay settlements.
Tax rises and spending cuts are widely expected in next month’s statement to MPs though The Times reported on Friday that a decision by the Bank of England to slow a programme of loss-making bond sales would leave Ms Reeves £10bn better off than she had anticipated.
It added that she was still expected to push forward with her budget plans anyway as a signal of her commitment to fiscal discipline.
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Chancellor: ‘One budget not enough’
The latest snapshot on the public finances, released by the Office for National Statistics (ONS) on Friday showed net borrowing of £13.7bn during August.
Its chief economist, Grant Fitzner, said: “Borrowing was up by over £3bn last month on 2023’s figure, and was the third highest August borrowing on record.
“Central government tax receipts grew strongly, but this was outweighed by higher expenditure, largely driven by benefits uprating and higher spending on public services due to increased running costs and pay.”
Consumer spending accounts for around 60% of the UK economy.
Keep up with all the latest news from the UK and around the world by following Sky News
Data released separately on Friday showed a 1% rise in retail sales volumes during August in the wake of weakness, mostly blamed on poor weather, over the previous couple of months.
The ONS said that the increase was driven by supermarket sales, as demand for BBQ food and drinks rose due to the arrival of some sunshine over the key holiday month.
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UK economy flatlines again
It also credited discounting by clothing retailers.
The data chimes with the latest updates from big retailers, including Next and B&Q’s owner, which have spoken of weak demand for so-called big ticket items such as home furnishings and kitchens respectively.
GfK’s closely-watched survey showed expectations for the general economy over the next 12 months fell by 12 points to -27, while the forecast for personal finances was down nine points to -3.
Read more:
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Which tax rises could Labour introduce at the budget?
Commenting on its key measures, including the headline figure, consumer insights director at GfK Neil Bellamy said: “These three measures are key forward-looking indicators so despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government.”
He added: “Strong consumer confidence matters because it underpins economic growth and is a significant driver of shoppers’ willingness to spend.
“Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the budget decisions on October 30.”
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