‘Fiscal sustainability’ plus rising borrowing costs could add up to cuts

theguardian.com:

When Kwasi Kwarteng met City figures on Tuesday, the Treasury said he had “reiterated the government’s commitment to fiscal sustainability”: though the grim faces of attendees in the official photos suggested they may not have been terribly reassured.

Some analysts are now warning that with borrowing costs rising sharply, and the chancellor determined not to water down his radical tax plans, “fiscal sustainability” points to one thing: spending cuts.

With Monday’s Treasury statement, coordinated with the Bank of England, Kwarteng gave himself eight weeks in which to draw up a medium-term fiscal plan.

He may yet be forced into more urgent action by a fresh outbreak of market turmoil; but like the Bank of England, whose chief economist, Huw Pill, said on Tuesday it would wait until November to act, he hopes to ride out the turbulence for now.

Kwarteng intends to publish his new plan on 23 November. The Treasury will also publish the forecasts from the independent Office for Budget Responsibility (OBR), which the chancellor opted not to produce last week.

He claims his plans will underline his determination to ensure that “debt falls as a share of GDP in the medium term”.

But that is hard to square with projections from thinktanks such as the Institute for Fiscal Studies (IFS) in recent days, which show debt rising relentlessly after his £45bn-a-year tax cuts; and it will be even harder once the rising interest bill resulting from soaring bond yields is taken into account.

Kwarteng is likely to insist that his growth-boosting reforms, which include planning liberalisation and tax breaks for inward investors, will help to tackle the debt burden.

But even if these changes work, few economists believe they will yield fruit rapidly.