Independent industry professionals have claimed Chancellor Kwasi Kwarteng will need to cut up to £62 billion of spending to stabilise the economy.
The Institute for Fiscal Studies (IFS) has claimed that the current Government will need to slash a large amount of public spending to afford the proposed tax cuts announced in the Chancellor's mini-budget.
While the IFS has said the Government would need to find ways to offset the costs of the proposed tax cuts, other groups like Tax Reform UK believe that the Government won't need to face such measures as there are other options available.
Paul Johnson, director at the IFS, said:
"The Chancellor should not rely on over-optimistic growth forecasts or promises of unspecified spending cuts. To do so would risk his plans lacking the credibility which recent events have shown to be so important."
With the next financial update brought forward to 31 October, along with updates from the OBR, the Government is expected to clarify how the tax cuts will be paid for.
Doubts over Government spending
Independent think tank the Resolution Foundation voiced scepticism over the Government's proposed £43bn tax cut package, arguing that a lack of detail about where the funding for the tax cuts will come from led to the pound's value plummeting after it was announced..
Another factor contributing to the lack of faith in the funding was the decision to announce the mini-budget without any reports from the Office for Budget Responsibility (OBR).
Torsten Bell, chief executive of the Resolution Foundation, said:
"Lower taxes combined with a loss of market confidence mean rising interest rates, leading to higher mortgages and lower living standards. But looking further ahead, they will mean lower spending too.
"Without U-turns on some tax cuts, the Chancellor has to decide which unpleasant combination of growth-reducing public investment cuts or income-reducing welfare cuts he is going to announce."
Rejection of Government balancing
Not everyone believes that the Government will have to make any cuts to balance out the economy, stating instead that the Chancellor could borrow money from the Bank of England (BoE) or consider quantitative easing.
In response to the IFS's report, Richard Murphy of Tax Research UK has said there is no £60bn hole to be balanced.
Murphy said:
"There is, of course, no such hole: the Government can run an unfunded deficit whenever it likes using funds made available to it by the BoE. To claim otherwise is simply to deny reality. If Kwarteng wishes to borrow from the BoE in this way, then he could, and they could not refuse him.
"If the Government announced a £100bn bond-buying programme to fund the emergency energy price support that it is providing over the next year, using the precedents of 2009 and 2020 as a wholly justifiable excuse, the market would not be phased. And what would immediately happen as a result is that the pressure on sterling would be reduced considerably."
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