Inside Politics: Fantasy economics

Leading thinktank criticises tax cutting plans of Tory leadership rivals, writes Matt Mathers

Both Tory leadership candidates were forced on Thursday to confront a stark report from economists warning of the danger tax cuts could pose to the public purse (Ben Birchall/Clodagh Kilcoyne/PA)

Hello there, I’m Matt Mathers and welcome to The Independent’s Inside Politics newsletter.

Good luck to all students and their parents getting A-level results today. Is it time to send Liz Truss and Rishi Sunak back to economics school? Doubts have been cast on The Tory leadership contenders’ tax-cutting plans after inflation soared to 10.1 per cent.

Inside the bubble

Parliament is not sitting.

Shadow education secretary Bridget Phillipson on Sky News Breakfast at 8.05am.

Education secretary and Truss supporter James Cleverly on BBC Radio 4 Today at 8.10am.

Daily briefing

Unrealistic

Runaway inflation dominates several newspapers and websites this morning following the ONS announcement that prices hit their highest level in 40 years. There are warnings that the 10.1 per cent figure, which is the worst in the G7 and outstrips most of our neighbours in Europe, leaves the Bank of England with little choice but to further hike interest rates, in what would be another hammer blow for families up and down the country.

The BoE previously forecast a peak of 13 per cent by October. But all those prior warnings have been undercooked. And with each passing week – coupled with predictions that energy bills could rise again in January – it looks increasingly like that 13 per cent forecast is optimistic at best. The dire economic outlook, and warnings of a recession, have placed even greater scrutiny on the tax and spending plans of the two Tory leadership candidates.

Right on cue, the respected Institute for Fiscal Studies thinktank has warned that pledges by Sunak and Truss to slash taxes are “unrealistic” unless there are spending cuts to match them – something neither candidate has vowed to do. In its report, the IFS echoes a recent warning by the Treasury watchdog, the Office for Budget Responsibility, that “the public finances are already on an unsustainable long-term path”, concluding: “Large, unfunded, permanent tax cuts would only act to make this problem worse.”

The IFS’s scathing report is undoubtedly a bigger blow to Sunak, whose entire campaign, at least at the outset, was based on “sound money” and less borrowing, while accusing his rival of “fantasy economics”. Critics might argue that the longer this contest has gone on, the less credible Sunak’s pledges have become, as he attempts to claw back some ground on Truss’s seemingly unassailable lead, which the latest poll puts at 32 per cent.

Both Tory leadership candidates were forced on Thursday to confront a stark report from economists warning of the danger tax cuts could pose to the public purse (Ben Birchall/Clodagh Kilcoyne/PA)

Responding to the report, Team Sunak said his tax plans were funded and that the IFS’s research supported his approach. A Team Truss source said she “would use an emergency budget to kickstart her plan to get our economy growing and put more money into the pockets of hardworking people”.

Walkouts

Not only will today’s Covid generation of A-level students get hammered with managed-down grades, but those who feel up to celebrating over the weekend face difficulty in getting around too, with just afifth of train services running in the latest round of strike action.

Tens of thousands of workers employed by Network Rail and 14 train operators ‒ members of the RMT Union ‒ are walking out for 2 hours due to a long-running dispute over pay, jobs and conditions.

This will have a knock-on effect on journeys into Friday morning. Also on Friday, a London Tube strike will put much of the capital’s network out of action, as three separate unions stage coordinated strikes.

Today’s cartoon

See all of The Independent’s daily cartoons here

(Dave Brown)

On the record

IFS deputy director Carl Emmerson on Truss and Sunak tax cut promises.

“The reality is that the UK has got poorer over the last year. That makes tax and spending decisions all the more difficult. It is hard to square the promises that both Ms Truss and Mr Sunak are making to cut taxes over the medium term with the absence of any specific measures to cut public spending and a presumed desire to manage the nation’s finances responsibly.”

From the Twitterati

Financial Times associate editor Stephen Bush on Tory leadership contest.

“The Conservative leadership election is fascinating, in that the continuity candidate [Truss] is running on a platform of ‘it was great, so great that we’re not going to do any of it again’.”

Essential reading

• Salma Shah, The Independent: Why Truss’s UK workers comments are bad policy followed by even worse politics
• Jon Stone, The Independent: Why Grant Shapps is really calling for cyclists to wear number-plates
• Martin Kettle, The Guardian: Truss and Sunak are promising sunshine without rain – don’t believe them
• Mehul Srivastava, Financial Times: Odesa struggles back to life after lifting of Russia’s port blockade

Inside Politics first appeared in our daily morning email. You can sign up via this link.