The new chancellor has told Treasury officials they must aim to return economic growth to a level barely seen since the 2008 financial crash, ahead of a tax-slashing mini-budget.
Kwasi Kwarteng told his department it needed to focus entirely on an annual 2.5 per cent rise, after Liz Truss won the Tory leadership blaming its “orthodoxy” for the UK’s feeble economic record.
His arrival as chancellor was marked by the shock dismissal of Tom Scholar, the Treasury’s highly-experienced permanent secretary – a move attacked by former senior civil servants.
Mr Kwarteng told his officials the sacking would not be the start of further big changes at the top, according to a source who spoke to The Financial Times.
But he demanded the new focus “entirely on growth”, the person on the call said, adding: “He said there was a need to do things differently under fresh leadership.”
The chancellor argued that returning annual growth to 2.5 per cent – its long-run average before the 2008-09 crisis – would allow the UK to cut its huge budget deficit in the medium term.
However, the rate was achieved in only two years during the decade of austerity and the UK’s growth potential has now been cut sharply by leaving the EU single market and customs union.
The budget deficit is set to mushroom because of the energy price freeze – expected to cost up to £150bn – and the £30bn of tax cuts that will be at the heart of the mini-budget.
Expected on Thursday next week, it is set to fulfil Ms Truss’s campaign pledges to reverse April’s rise in national insurance contributions and axe next year’s planned hike in corporation tax from 19 per cent to 25 per cent.
The government is also under fierce pressure to reveal the expected cost of a two-year “energy price guarantee”, an omission described as “extraordinary” by the head of the Institute for Fiscal Studies.
Paul Johnson warned the freeze must be replaced by “something better next winter” because it will cost up to £150bn, rather than lasting until 2024.
“This could actually turn out to be the biggest single fiscal announcement in my lifetime, because this could cost £150bn,” he said – calling it “incredibly expensive” and “totally untargeted”.
Ms Truss railed against a decade or more of Treasury failure during her successful Tory leadership race, claiming it had failed governments of both colours.
She attacked “the so-called abacus economics that the Treasury orthodoxy has promoted for years”, arguing: “It hasn’t worked in our economy because what we have ended up with is high tax, high spending and low growth.”
But economists argue growth flows from higher investment and productivity – warning unfunded tax cuts will simply fuel inflation in their absence.