Treasury officials accuse Boris Johnson of ‘economic illiteracy’ over his eco plans

Treasury officials have accused Boris Johnson of ‘economic illiteracy’ as tensions grow in Government over the mounting cost of the Prime Minister’s spending promises – with tempers fraying in particular over the bill for new green policies.

Chancellor Rishi Sunak has become increasingly concerned that inflationary pressures building up in the economy could force the Bank of England to raise interest rates – boosting bills for the Government as much as for ordinary households.

A perfect storm of surging energy prices, the end of the furlough business support scheme and public spending plans could push inflation past the previously predicted peak of 4 per cent this year, leaving the Bank no choice but to raise interest rates from the current record low of 0.1 per cent.   

Mr Sunak fears an increase in rates because it would lead to a sharp rise in the £9 billion the Treasury pays in interest every month on its borrowing.

But he has had to stifle his objections to avoid accusations of disloyalty from No 10. When combined with the billions of pounds that the Prime Minister plans to spend on infrastructure projects and green policies, some Treasury officials fear that Britain could see its credit rating on the international markets downgraded.

One source said the UK could ‘end up as the Venezuela of Europe’ – a reference to the South American country’s struggle to pay off a mountain of foreign debt.

The source told The Mail on Sunday: ‘The mandarins at the Treasury think Boris can only think in the short term and is effectively economically illiterate.’

However, other Government sources said last night that the UK’s borrowing position was expected to improve over the coming year.

The Chancellor will deliver a Budget and a Spending Review on October 27.

It was reported yesterday by the Financial Times that Mr Sunak was using ‘out of date’ economic figures to paint a deliberately pessimistic view of the economy’s prospects so he could dampen down spending requests from departments, thereby allowing himself to announce a better-than-expected improvement in his 2022 Budget.

Downing Street is keen to show progress on its green agenda ahead of next month’s COP26 climate summit in Glasgow.

To fulfil the plan to cut carbon dioxide emissions by 78 per cent by 2035 – and completely decarbonise the economy by 2050 – the installation of new gas boilers will be banned from 2035, with families likely to be offered £5,000 grants to purchase heat pumps for their homes as part of the Prime Minister’s long-awaited Heat and Buildings Strategy. 

But the cost of the pumps far outstrips the price of £1,500 to £3,500 for gas boilers.

Mr Sunak was horrified by calculations from the independent Office for Budget Responsibility (OBR), putting the cost of making all buildings in the country net zero for carbon emissions at £400 billion.

The strategies have been devised by Business Secretary Kwasi Kwarteng, who clashed with Mr Sunak last weekend when he claimed to be in talks with the Treasury over financial support for firms hit by the high energy prices – only for the Treasury to accuse him of ‘making things up’.

Last night, a Treasury source said: ‘The Chancellor and PM are united in their ambitions to ensure that the promises we made in 2019 are delivered. 

And with departments’ budgets increasing at record levels over the Parliament, their record speaks for itself.’