The Chancellor has been accused of “betting the house” by gambling on the UK’s future with large increases in borrowing to fund multiple tax cuts.

Kwasi Kwarteng, announcing the Government’s new economic policy yesterday, said tax cuts are “central to solving the riddle of growth” as he confirmed plans to axe the cap on bankers’ bonuses while adding restrictions to the welfare system.

But the pound dived to a fresh 37-year low as “spooked” traders swallowed the cost of the spree launched by the Chancellor and Prime Minister Liz Truss two years ahead of a general election.

Shadow chancellor Rachel Reeves said the strategy amounts to an “admission of 12 years of economic failure” under successive Conservative governments.

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Handout photo issued by UK Parliament of Chancellor of the Exchequer Kwasi Kwarteng delivering his mini-budget in the House of Commons, London. Issue date: Wednesday September 23, 2022. See PA story POLITICS Budget. Photo credit should read: UK Parliament/Jessica Taylor/PA Wire

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The Leeds MP likened the Prime Minister and Mr Kwarteng to “two desperate gamblers in a casino chasing a losing run”.

Treasury estimates priced the tax cuts, including the promised reversal of the national insurance rise and axing the hike to corporation tax, at nearly £45bn a year by 2026.

The package was announced a day after the Bank of England warned the UK may already be in a recession and lifted interest rates to 2.25 per cent.

That move made Government borrowing more expensive than at any point over the past 13 years.

Paul Johnson, the IFS director, said Mr Kwarteng’s “gamble with fiscal sustainability” was the “biggest tax-cutting event since 1972”.

Amid soaring interest rates, he warned the Bank of England will surely further hike interest rates in response to the package.

Mr Johnson said: “Early signs are that the markets – who will have to lend the money required to plug the gap in the government’s fiscal plans – aren’t impressed. This is worrying.”

Mr Johnson also warned that it was “inconceivable” that further public spending was not being announced, unless the Government will allow a “further deterioration” in public services.

“Presumably this Government would borrow for that also. Mr Kwarteng is not just gambling on a new strategy, he is betting the house,” Mr Johnson said.

He warned that the package of tax cuts announced 50 years ago by then-chancellor Anthony Barber under a dash for growth “ended in disaster”.

Mr Kwarteng committed to get debt falling as a percentage of GDP over the medium term, but the Treasury estimates the package would have to drive up GDP by one per cent on current forecasts every year for five years to cover the cost of the new tax cuts.

The Treasury said the total package would be funded by increasing borrowing by £72.4bn.

The IFS forecast that Government borrowing could remain as high as £110bn a year even after the massive energy support package expires in two years, and that future tax rises or spending cuts will be needed to pay for increasing debt.

It is expected there will be an official forecast by the Office for Budget Responsibility on the true cost of the policies and their impact on the economy before the end of the year.

On the expanding borrowing to pay for tax cuts, Carsten Jung, senior economist at the IPPR think tank, said that this risks “super-charging inflation” on top of other spending commitments.

Pound plummets as the Government seeks to borrow its way to growth