The UK is heading for what could be the longest recession on record new figures have confirmed as Tory tensions over next week’s autumn statement erupted in public.
Chancellor Jeremy Hunt braced the public for tax rises and public spending cuts as he warned of “eye watering” decisions ahead, after the Office for National Statistics announced the UK economy shrank in the last quarter.
But he also hit out at his predecessor, after Kwasi Kwarteng claimed Liz Truss’s disastrous 44 days in office were not to blame for the UK’s economic woes.
The row came as a shock new survey showed councils across England expect to make major cuts to bus routes, libraries and even streetlamps amid another wave of austerity.
The Bank of England forecasts that by the end of the year Britain will be in a recession that could last until the middle of 2024.
Preparing the ground for next week’s announcement, Mr Hunt said he had to “grip inflation, balance the books and get debt falling – there is no other way”.
He pointed to the effect of international factors, saying the UK was not immune from the global challenges posed by Putin’s war in Ukraine.
But he hit out at Mr Kwarteng, saying that when he “produced a fiscal statement that didn’t show how we were going to bring our debts down over the medium term, the markets reacted very badly. And so we have learned that you can’t fund either spending or borrowing without showing how you are going to pay for it. And that is what I will do.”
As tensions between the different camps rose, former minister John Redwood, who was mooted earlier this year as a possible chancellor under Ms Truss, publicly accused Mr Hunt’s Treasury of steering the UK into a downturn and failing to listen to those who “who want them to fight recession”.
He added: “Treasury briefings say they need to clobber us with more taxes to cut demand. Meanwhile in the real world we worry about the approaching recession. Why does the Treasury drive by looking in the rear view mirror instead of seeing they are steering us into a downturn?”
Ms Truss’s Work and Pensions secretary Chloe Smith, meanwhile, urged the new government to stick with work she had started in her department.
She told PoliticsHome podcast The Rundown that the “clear principle” had to be how to protect the most vulnerable.
“It’s certainly one that I was applying, and… it’s one that I’m glad that Mel (Stride, her successor) and Rishi have also spoken about, and emphasised. That’s really important.”
She added: “I can’t pre-empt what they will decide, obviously, but I think it is right that they try to blend that principle of supporting the most vulnerable with the fiscal sustainability and the stability in the public finances that is going to be needed in order to create a strong economy that endures and supports everybody.”
One former Tory minister told The Independent sarcastically that he was glad senior Conservatives were fighting each other again “because that has always worked so well in the past”.
The survey of councils found just one in five (22 per cent) are confident of avoiding insolvency next year if there is no extra support in the autumn statement.
The County Councils Network (CCN) found 72 per cent said they would likely be forced to tighten eligibility for adult social care services because of budget shortfalls.
Three in four (75 cent) said they would likely cut some or all bus route subsidies, two in three (63 per cent) said they would likely turn off some streetlights, and over half (56 per cent) would likely cut the number of libraries.
Councillor Sam Corcoran, Labour vice-chair of the CCN, warned: “If the chancellor does not spare councils from further cuts and provide more funding for local authorities, everything is on the table when considering which vital services to cut.”
The official figures show Gross Domestic Product (GDP) shrank by 0.2 per cent between July and September, compared to growth of 0.2 per cent in the previous three months.
The Office for National Statistics said GDP had fallen sharply in September, by 0.6 per cent, in part due to the slowdown in activity for the Queen’s funeral.
Shadow chancellor Rachel Reeves said today’s figures were “another page of failure in the Tories’ record on growth”.
She said: “Britain’s unique exposure to economic shocks has been down to a Conservative-led decade of weak growth, low productivity and underinvestment and widening inequality.”
The Bank of England has cautioned the UK may be heading for the longest recession on record, but that would happen only if it raises interest rates to around 5.2 per cent – which it does not expect to have to do.
The TUC said the government must use the autumn statement to avoid deep cuts and protect pay and public services, arguing it was the best was to ensure a recovery.
TUC boss Frances O’Grady said: “Sunak and Hunt must not repeat the mistakes of Cameron and Osborne. Tory cuts over the past 12 years have meant the slowest recovery for a century.”
Ms Revees added: “We’re already set to be near the bottom of global league tables on growth, but all the Tories offer yet again is austerity.”
Speaking to broadcasters, Mr Hunt said recessions around the world were “principally, but not entirely” due to a spike in global energy prices.
The chancellor said the government had to show it had a plan to make the likely recession “shallower and quicker” and “give families some hope that we will get through to the other side with the most vulnerable protected”.