Tories turn on Kwasi Kwarteng after Bank of England intervention to save pension funds

The Government and Bank of England are scrambling to avoid a full-blown financial crisis after another day of market turbulence sparked by Liz Truss and Kwasi Kwarteng’s tax-cutting plans.

The price of Government bonds and sterling recovered after the Bank stepped in to start buying bonds directly amid fears that pension funds would otherwise face meltdown within hours.

Ministers were on Wednesday evening divided over whether the Chancellor – who faces calls for his sacking from some Conservative MPs – should perform a U-turn and abandon his pledge to cut income taxes in order to reassure investors about the public finances.

Cabinet ministers were last night reportedly being sent letters from the Treasury asking them to find efficiency savings in their department – raising the prospect of cuts to services – in order to reduce more government borrowing. Budgets are already under pressure from inflation and the move is likely to further agitate Conservative MPs.

Traders have bet against UK bonds and sterling since Mr Kwarteng unveiled his fiscal plans last Friday, fearing that the Government may have difficulty paying its debts in future because of the scale of public borrowing.

The markets squeeze left pension funds which are heavily invested in bonds facing unsustainable demands to put up extra capital in order to meet their potential obligations.

The Bank of England announced today it would buy bonds using funds backed by the Treasury, which pushed up their price and stabilised the currency – although at a level significantly lower than it was a week ago. Without the intervention there would be “a material risk to UK financial stability”, the Bank said.

The Chancellor is tomorrow expected to appear in public for the first time since Sunday following demands from MPs that he and Ms Truss should take further steps to reassure the public. City minister Andrew Griffith attempted to calm markets last night, saying: “What’s unprecedented is the level of volatility we’ve seen in all developed markets, and the UK went into this with a strong balance sheet.”

At a meeting with the leaders of US financial institutions, Mr Kwarteng insisted he had a “clear commitment to fiscal discipline” – but the bankers told him he could not wait until late November as currently planned to lay out his strategy for keeping the public debt under control, it is understood.

A senior minister told i the Government should urgently change its economic policy and consider replacing Mr Kwarteng. They said: “The Government needs to try to gain market credibility and that requires something different. I don’t think the present plan or people will regain market credibility.”

But a source close to the Chancellor insisted there was no prospect of scrapping the tax changes announced last week. A Cabinet minister added: “We have made an enormous energy price intervention, and every political party would propose to do the same. We will continue on our planned growth plan, whilst underwriting business and citizens through the energy price crisis.”

Government insiders are relying on a more positive reaction for a series of economic reforms likely to be trailed at next week’s party conference and announced in detail over the course of the autumn.

A Conservative MP blamed fellow Tories for helping to stoke the markets reaction, saying: “We have just intervened in energy prices and altered the direction of economic policy. There was bound to be reaction. Panic by MPs will hinder settling the markets.”

Ken Clarke, the former Chancellor, accused the Government of being irresponsible. He said: “The Budget was a serious mistake and has caused a serious problem.”

Opposition leaders called for Parliament to be recalled from recess in order to debate the best way forward – Sir Keir Starmer said the Commons should sit “as soon as possible”.

The Government’s push for lower taxes has fuelled speculation that state spending will have to fall to avoid a debt crisis. The Chief Secretary to the Treasury has written to all Cabinet ministers asking them to find “efficiency savings” in their departments. 

Reference: Ellen O'Dwyer -