UK ministers are determined to press ahead with their calamitous tax-cutting plans despite sending the economy into turmoil.
The insistence to proceed comes amid reports that Liz Truss is instructing her Cabinet to find “efficiency savings” – raising fears that frontline services are set for funding cuts.
The director of the Institute for Fiscal Studies (IFS) has warned that the Chancellor may have to “freeze spending”.
Chancellor Kwasi Kwarteng moved to reassure the markets after the International Monetary Fund (IMF) starkly insisted it was “closely monitoring” developments in the UK and was in touch with Tory ministers, urging the Chancellor to “re-evaluate the tax measures”.
The IMF warned the current plans, including the abolition of the 45p rate of income tax for people on more than £150,000 in England, are likely to increase inequality.
But the Bank of England took the emergency step to buy up to £65 billion worth of government bonds – known as gilts – at an “urgent pace” after fears over the UK Government’s economic policies sent the pound tumbling and sparked a sell-off in the gilts market.
The Chancellor insisted he was “confident” his tax-cutting strategy will deliver the promised economic growth.
Sterling slumped to a record-low against the dollar on Monday before recovering and the Chancellor has sought to convince City investors he has a “credible plan” to start reducing the UK’s debt mountain.
The IMF urged Mr Kwarteng to change course when he comes back to Parliament in November with a package intended to show how he intends to get the economy back on track.
“The November 23 budget will present an early opportunity for the UK Government to consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high income earners,” the IMF said.
But Treasury minister Andrew Griffin has insisted that the tax cuts remain “the right plans”, claiming the proposals “make our economy competitive”.
He added: “Get on and deliver that plan – that’s what I, the Chancellor and my colleagues in Government are focused on is getting on and delivering that growth.
“That is what is going to allow consumers to benefit. In the meantime, we are protecting every household and every business from the biggest macro shock out there at the moment, which is the cost of energy.”
Nicola Sturgeon has led demands for a re-think of the proposal to cut tax for the super-rich in England, accusing the UK Government of being responsible for a “rapidly deteriorating economic crisis”.
Speaking at Holyrood’s conveners’ committee, she said there was now an “inevitability of a sharp rise in interest rates” which would have a “very profound impact” and “push more people into very serious financial stress”.
Ms Sturgeon also suggested that the impact on the UK economy could possibly be more severe than the 2008 global financial crash.
She said: “The UK is in the midst of an unfolding and rapidly deteriorating economic and financial crisis.
“It’s going to be ordinary people that pay the price of that.”
The First Minister added: “I don’t think we have had a more serious economic situation, possibly even including 2008 which was a global financial crisis, but in the UK, possibly not a more serious situation in our memories.”
The First Minister told MSPs: “I think there needs to be very urgent and immediate action taken.
“I don’t think we should see the policies announced on Friday as inevitable.
“As an immediate symbol of some kind of good sense being restored, the decision to abolish the top rate of tax should be reversed.
“I don’t think it’s possible to overstate the damage of this budget.”
Labour shadow chancellor Rachel Reeves called for an “urgent statement” from the Chancellor to address “the crisis that he has made”.
She added: “Their decisions will cause higher inflation and higher interest rates – and are not a credible plan for growth.
“The Chancellor must make an urgent statement on how he is going to fix the crisis that he has made.
“This is a crisis made in No 10 and is the direct result of the Tory Government’s reckless actions, which include tax cuts for the richest 1%.”
Reports have emerged that the Prime Minister is set to row back on her pledge during the Tory leadership campaign she was “not planning public spending reductions”.
According to reports, the savings are intended to reduce the level of government borrowing needed in the future, in a bid to calm the market turmoil.
SNP MSP Jim Fairlie said: “Bit by bit the Tories are ripping apart devolution through the Internal Market Bill, the levelling-up fund and now we face the real prospect of severe cuts to public services which will have a devastating impact on the future of devolution in Scotland.
“As the Tories tank the economy and the pound nose-dives, no public service is safe.”
Earlier, Paul Johnson, the director of the IFS, said: “The difficulty the Government has got itself in is that it is cutting taxes so dramatically without any kind of plan of what it is going to do on public spending.
“This is going to create a big challenge for the Chancellor, who has said in a couple of months’ time he is going to come back to us with a credible plan.
“If I had to guess now what that plan might look like, I would suggest that it will be that he will look five years into the future and he’ll say ‘I’m going to freeze spending over the whole of that five-year period’.
“The problem with that is that, particularly after a decade of austerity and cuts in public services, there are serious questions as to whether there is any credibility associated with a freeze in public spending for such a long period of time.”