Kemi Badenoch has said she is “really worried” that the UK might be forced to embark on a 1976-style bailout from the International Monetary Fund.
The Conservative leader told Newsnight that the UK could be forced to go “cap in hand” to the IMF unless the government delivers a plan for economic growth.
She made her remarks as she offered to work with Sir Keir Starmer “in the national interest” to cut welfare spending. She said welfare cuts and growth were needed to help the government out of a “doom loop” of rising taxes and precarious public finances.
A Labour Party source said Mrs Badenoch had a “brass neck” for offering such advice, after the Conservative government had “crashed the economy”.
The Labour government of the late prime minister Jim Callaghan was forced to apply for a $3.9bn (£2.9bn) emergency loan from the IMF during the 1976 sterling crisis.
That was seen as a seminal event in post war economic history which severely undermined the economic credibility of the Callaghan government.
Asked what made her think the UK is heading towards the need for an IMF bailout, Badenoch said: “A lot of the indicators are pointing in that direction.
“Many very well respected commentators and economists are saying this.”
A number of economists, mainly on the right, have in recent weeks raised the prospect of a version of the 1976 sterling crisis repeating itself. Other economists have dismissed this as hyperbole.
Andrew Sentance, a former member of the Bank of England Monetary Policy, wrote of “eerie parallels” between the position of the current chancellor and that of the late Denis Healey, chancellor during the 1976 sterling crisis.
But in an article for the Sun last month, Mr Sentance concluded: “The UK may not end up calling in the IMF.”
Governments borrow money from investors by selling bonds – which is a loan the government promises to pay back at the end of an agreed time. The yield on 30-year UK government bonds – which are known as gilts – has been rising for a number of months, although has now fallen back slightly.
Badenoch said there was a “crisis” in UK bond prices.
She pointed to UK borrowing costs hitting a 27-year high last week as “yet another indicator” and stressed “we are not growing enough”.
The Tory leader said: “Labour does not have any plan for growth,” adding: “They thought that as soon as they got into power, things would just work because they’re Labour and they believe in their own righteousness.
“That is not working – they need to get a plan to grow our economy, otherwise we will end up going to the IMF cap in hand.”
Dismissing a suggestion she was talking the country down, she claimed that doing nothing “would be a dereliction of duty on my part” and said was instead offering “an olive branch” to the prime minister to work with him.
“If we do get that sort of crisis because of their bad decisions, we’re all going to suffer,” she said.
“There is no benefit for the opposition party in a country that’s doing badly.
“We want our country to do well and we will work with the national interest to get that.”
The Conservatives have two key demands for working with Sir Keir, which are maintaining the two child benefit cap and slashing welfare, although the Tories did not support the government when Sir Keir was forced to water down the welfare Bill by a backbench rebellion in July.
“I’m sure that we’ll be able to come up with some suggestions, and then if we agree to that – it’s not a blank cheque – but if we can find some agreements, then yes, we’ll support it,” she said of the Bill.
In response to Badenoch’s comments, the Labour Party source said: “Kemi Badenoch’s Conservatives crashed the economy and sent mortgages spiralling. The brass neck Kemi has to think she can offer advice on the economy now is astonishing. The Tories haven’t listened and they haven’t learned.”
