Ms Truss under pressure to reverse tax policy
Ms Truss under pressure to reverse tax policy
British Prime Minister Liz Truss fired her finance minister Kwasi Kwarteng on Friday, shortly before she is expected to cut parts of their economic package in a desperate bid to survive the market and the political turmoil that grips the country.
Mr Kwarteng said he had resigned at the request of Ms Truss after returning to London overnight from IMF meetings in Washington. Ms Truss, who has been in power for just 37 days, will hold a press conference later on Friday, Downing Street confirmed.
“You’ve asked me to step aside as your chancellor. I have accepted it,” Mr Kwarteng said in his resignation letter to Truss, which he published on Twitter.
Ms Truss said in response: “As a long-standing friend and colleague. I am deeply sorry to lose you to the government.”
“We share the same vision.”
Jeremy Hunt, a former Minister of Foreign Affairs and Health, will replace Mr Kwarteng.
British government bonds, which have begun to recover since her government began looking for ways to balance the books after the unfunded tax cut plan crushed the pound and gilts and international censorship, rose further.
Mr Kwarteng is the country’s shortest-serving chancellor since 1970, and his successor will be the fourth Chancellor of the Exchequer in as many months in Britain, where millions of people face a cost of living crisis. The finance minister with the shortest term of office has passed away.
Mrs. Truss’ own position is in jeopardy.
She won Conservative Party leadership last month by promising massive tax cuts and deregulation to try to shock the economy out of years of sluggish growth, and the fiscal policy Mr Kwarteng announced on Sept. 23 aimed to fulfill that vision. to make.
But the reaction from the markets was so fierce that the Bank of England had to step in to prevent pension funds from becoming entangled in the chaos as borrowing and mortgage costs rose.
The duo came under increasing pressure to change course after polls showed support for the Conservative Party had collapsed, prompting many colleagues to look for ways to force them out of office.
“The party likes the idea of principles and persuasion from politicians, but staying in power is everything,” a party insider said. Reuters. “Relentless can also be popular.”
After triggering a market breakout, Ms Truss now faces the risk of bringing down the government if she can’t find a package of spending cuts and tax hikes that could appease investors and pass a parliamentary vote in the House of Commons.
Its quest for savings is complicated by the fact that the government has been cutting departmental budgets for years.
At the same time, the Conservative Party’s discipline has all but broken down, broken by infighting as it struggled first to agree a way to leave the European Union and then how to cope with the COVID-19 pandemic and boost the economy. to grow.
“If you don’t get your budget through parliament, you can’t govern,” Chris Bryant, a senior lawmaker from the opposition Labor party, said on Twitter. “This isn’t about u-turns, it’s about good governance.”
Underlining how far Britain’s reputation for sound economic management and institutional stability had fallen, a source within the Group of Seven Leading Countries said G7 finance ministers focused on the issues at a meeting this week. in Britain, and not on the usual subject of Italy.
In Washington, Mr. Kwarteng was told by the head of the International Monetary Fund about the importance of “policy coherence”. His flight back to London was broadcast live by TV news channels. He was fired minutes after arriving at Downing Street.
In Westminster, Ms Truss sought to agree with her ministers on a way to maintain her growth drive with measures acceptable to her legislators and which would also reassure financial markets.
Rupert Harrison, portfolio manager at Blackrock and once adviser to former British Chancellor of the Exchequer George Osborne, said markets have now almost fully priced in a turnaround.
“(That) means if the U-turn doesn’t come, the markets will react badly,” he said on Twitter.
Fighting to survive
A Conservative Party lawmaker, who asked not to be named, said Mrs Truss’ economic policies had done so much damage that investors could demand even bigger austerity measures to restore confidence.
“Anything is possible right now,” said the lawmaker, who had backed another ex-chancellor, Rishi Sunak, in the race for leadership. “The markets have lost faith in the Conservative Party – and who can blame them?”
According to a source close to the prime minister, Ms Truss is in “listening mode” consulting lawmakers to gauge which parts of the program they would support in parliament.
Credit Suisse economist Sonali Punhani said the government needed to find about £60 billion through tax cuts and further austerity.
“It would be challenging to realize the magnitude of these cuts, but to be credible they need to be implemented earlier than the latter part of the forecast,” Ms Punhani said.
A key policy that is expected to be reversed is a plan to keep corporate tax rates at 19% rather than raising it to 25% as Mr Sunak suggested when he was Finance Minister under Mrs Truss’ predecessor Boris Johnson.
That could save £18.7 billion by 2026/27.
The latest wave of political drama gripping Britain comes as the Bank of England also prepares to end its intervention in the gold market. Mrs Truss is the fourth Prime Minister in six turbulent years of British politics. ($1 = 0.8869 pounds)