Rishi Sunak has dismantled what was left of Liz Truss’s legacy on his first full day as prime minister, abandoning fracking and refusing to guarantee the pensions triple lock or a defence spending rise.
Any change to pensions or a decision not to uprate benefits in line with inflation would draw new battle lines between Sunak and Conservative MPs, a number of whom have said they would not back cuts falling on the most vulnerable.
Sunak and the chancellor, Jeremy Hunt, also delayed the autumn statement for a further fortnight to give departments more time to find double-digit savings to fill an estimated £35bn black hole – balanced with further tax measures. The Treasury has drawn up an initial menu of 70 tax-and-spend options, the Guardian understands.
Hunt will meet new cabinet ministers over the coming days to brief them about the fiscal situation and to discuss the effects on departments and the scale of cuts required. The chancellor is understood to be planning a fiscal statement that balances spending cuts and tax rises 50/50, including a potential expansion of the windfall tax on oil and gas companies.
Under George Osborne, the Treasury worked from a formula of 80/20 cuts and tax measures, but there is said to be a widespread understanding that public services cannot take such severe further cuts, especially with high inflation.
Ministers will re-examine the pensions triple lock and increasing benefits in line with inflation over the next fortnight, according to No 10, though the choice to make changes would be politically difficult.
At her final PMQs before her departure Truss committed to the triple lock – a guarantee that the state pension will rise every year by whichever is highest of inflation, earnings growth or 2.5% – and Sunak hinted it would not be his preferred course of action by referencing commitments in the manifesto. Ending the pensions triple lock for 2024-25 would save £11bn.
“That is something that is going to be wrapped up into the fiscal statement, we wouldn’t comment ahead of any fiscal statements or budgets,” Sunak’s spokesperson said. “But what I can say is he has shown through his record as chancellor that he will do what’s right and compassionate for the most vulnerable.”
On benefits, Sunak would face a potential cabinet and parliamentary backlash. The new work and pensions secretary, Mel Stride, had previously warned it would be “extraordinarily difficult” for the government to persuade MPs to link benefits uprating to wage rises instead of inflation.
Sunak is also thought to be wary of Truss’s pledge to increase defence spending, a commitment from her leadership campaign. The defence secretary, Ben Wallace, who kept his post in the cabinet reshuffle, has made it clear in the past he wants defence spending to rise to 3% of national income by 2030.
At his first outing in the Commons as prime minister, Sunak said fracking would in effect remain banned under his government, referring to the 2019 manifesto that placed a moratorium on shale gas extraction. A formal step will take place in the coming days to confirm the renewal of the ban – most likely a written ministerial statement.
Sunak’s spokesperson ruled out reinstating the national insurance rise, which Truss repealed, saying it was difficult to pause now it had been voted on in parliament.
The spokesperson also confirmed Truss’s planned supply-side changes had been abandoned, which were targeted at eight areas including planning, the environment and childcare and which could have ushered in a new wave of deregulation.
Officials have been warned that the scale of the task requires budgets to fall by at least 7.8% in real terms over the next four years, which would be of a similar scale to David Cameron’s austerity years.
The Institute for Government said in a new briefing that holding down public sector pay and cutting staff was not politically or practically viable given the high inflation rate and widespread issues with retention and recruitment resulting in shortages across the NHS and education.
It said there was severe strain already on capital spending, with maintenance backlogs for schools, the NHS, courts and prisons already at £23.7bn.
The new date for the fiscal event means the economic plans and Office for Budget Responsibility (OBR) forecasts will not be made available before the next meeting of the Bank of England’s monetary policy committee (MPC), which sets interest rates, on 3 November.
Hunt said the change of plans had been discussed with the Bank’s governor, Andrew Bailey, and he “understands the reasons for doing that and I’ll continue to work very closely with him”.
Hunt said: “I want to confirm that it will demonstrate debt falling over the medium term, which is really important for people to understand. But it’s also extremely important that that statement is based on the most accurate possible economic forecasts and forecasts of public finances.”
It is the second time the date of the statement has been changed. It was originally announced by Kwasi Kwarteng for 23 November, but then brought forward under intense political and economic pressure to 31 October, in part to inform the MPC’s meeting.
Bailey had previously welcomed the move to make the fiscal statement before the possible rates rise decision, calling it the “correct sequence”, and said it would be helpful to know the “full scope of fiscal policy by then”.
But Treasury sources said the urgency of the economic situation had lessened and the statement and accompanying OBR forecasts would benefit from a more accurate long-term fiscal picture that could be gathered in the coming weeks. “The situation has markedly improved,” one official said.
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