I've never known a budget cause such a serious and extraordinary crisis, Ken Clarke tells LBC

28 September 2022, 19:28 | Updated: 28 September 2022, 19:32

Tory grandee Ken Clarke has told LBC that the financial turmoil unfolding in the wake of Kwasi Kwarteng's mini-budget is a "serious" and "extraordinary crisis".

The former chancellor and long-time MP, who now sits as a Conservative member of the House of Lords, told Tonight with Andrew Marr that he had never known a budget to cause a crisis like it.

The pound did tumble during the day but rallied more than 1% against the dollar by 5.30pm, taking it to $1.0843.

But Wednesday also saw the Bank of England step in to buy Government debt, effectively having to save pension funds.

It came after Mr Kwarteng's big tax-cutting budget, which critics derided as full of spending that was not properly funded.

Lord Clarke told LBC this was a "serious crisis, it's an extraordinary crisis, politically as well as economically".

Read more: Marr: It is a dereliction of duty that Truss and Kwarteng didn't speak today - cowardly and shameful

He added: "I've never known a budget to cause a financial crisis like this, I think the Government and the Bank of England are still going to have to act to calm it down and get us back to normality before we work out how we're going to recover."

Lord Clarke said that what the Government says next has got to be "spot on".

Ken Clarke: I've never known a budget cause a financial crisis like this

"Sooner they make it clear we are going to have sensible, disciplined economic policy from now on… the sooner the better," he added.

Lord Clarke, a former home secretary who was a Tory MP between 1970 and 2019, said announcing "big measures" like tax cuts "without knowing what the economic circumstances are surrounding your budgets" should not happen.

He wanted to see a full commitment to financial discipline, a full statement on economic policy-making inside of two weeks and a position of not rushing into quick policy making without first taking advice.

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The main thing is to restore confidence, Lord Clarke said, and he said his Tory colleague Simon Hoare was showing restraint when he branded Ms Truss's financial policy as "inept madness".

The yield on 10-year gilts - a proxy for the effective interest rate on public borrowing - had also soared by the most in a five-day period since 1976, experts said.

'We should have increased taxes not slashed taxes!'

As the pound tumbled and banks began withdrawing mortgage products given ongoing economic uncertainty, the Bank of England said: "Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.

"This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.

"In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses."

Its bond-buying programme will run until October 14.

Sir Keir Starmer, the Labour leader, accused Liz Truss of being a "danger" who had "lost control".

Some Tories are also said to be concerned by the reaction to Mr Kwarteng's mini-budget on Friday, in which he said he would abolish the top rate of income tax, ended the limit on banker's bonuses and cut the standard rate on income tax by 1p per pound.

Rishi Sunak, Ms Truss's leadership rival who fought a campaign rooted in his professed financial competence, will not attend the weekend's Tory conference in Birmingham.

But Andrew Griffith, the city minister, said after that the Government still believes Kwasi Kwarteng's big tax-cutting policies, announced on Friday, were correct.

"We think they are the right plans because those plans make our economy competitive," he said.

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."