UK PM fires finance chief, rolls back tax cuts to calm markets
Updated October 14, 2022 1:56 PM ET
LONDON — British Prime Minister Liz Truss has sacked her finance minister and close ally Kwasi Kwarteng. Hours later, she announced a U-turn on their economic package, attempting to calm financial markets and bolster her fragile leadership position just over a month after taking office.
The government has said former Health Secretary Jeremy Hunt will take over as Chancellor of the Exchequer, the UK Treasury. He is the fourth Chancellor this year.
Shortly after sacking the finance minister, Truss held a press conference in Downing Street and looked visibly nervous, saying: “We need to act now to reassure the markets of our fiscal discipline.”
She announced she was canceling a proposed cut in corporation tax, a central part of the new government’s economic plan that has wreaked havoc in British politics and financial markets and sent the pound plunging. late last month.
Truss’ course correction comes as his administration has come under mounting criticism from opposition politicians and lawmakers within his own party, as well as economists and international investors who have continued to divest from British assets.
Kwarteng was true to his vision
Kwarteng had to depart early from Washington, DC on Thursday evening, where he had met his counterparts at the International Monetary Fund. He and Truss held urgent talks in Downing Street shortly after he returned to London.
“When you asked me to be your Chancellor, I did so knowing full well that the situation we faced was incredibly difficult, with global interest rates and energy prices rising.” , Kwarteng said in his departure letter. “However, your view of optimism, growth and change was right.”
Prior to her public address, Truss’s office and her supporters had repeatedly said she would not change her broader approach to reigniting economic growth, and that she and Kwarteng would continue to work together toward a common goal.
This is not the first reversal of the economic plan
Truss took over from former Prime Minister Boris Johnson in early September. Within days, then finance minister Kwarteng had proposed a series of tax cuts and spending measures, without saying how they would be funded.
The proposal caused the pound to weaken to a record low against the dollar. Millions of homeowners faced steep increases in their mortgage rates and government borrowing costs soared. This prompted the Bank of England to intervene to prevent a crisis.
Earlier this month, the government backtracked on another part of its controversial economic package, scrapping proposed tax cuts for high earners.
As confidence and anticipation for further change rose, the pound rose in value on Thursday and bond markets stabilized. And within minutes of Truss’ speech on Friday, the currency rallied significantly — often a sign of heightened investor confidence in a country’s economic future.
The reactions of his party are mixed
Therese Coffey, Deputy Prime Minister and Health Secretary, who is one of Truss’s oldest allies in Parliament, tweeted his support for Friday’s decisions. She wrote that Truss was “right to act now to ensure our country’s economic stability,” especially given the deteriorating global economic situation, which she attributed to the US invasion of Ukraine. Russia.
Meanwhile, veteran Tory lawmaker Roger Gale said it was unclear why Truss kicked Kwarteng out. He wrote on Twitter that the former chief financial officer was a “good man” who had simply “promoted the policies on which she [Truss] was elected as the ‘conservative leader’ by the rank and file members of the party.
Gale, however, described the new chancellor, Hunt, as “a pair of experienced hands on the financial bar”.
But former Tory leader William Hague told Times Radio he thought Truss was barely holding the post of prime minister.
“It was a catastrophic episode,” said Hague, a former foreign minister. “And I think that’s hanging by a thread – that’s the honest answer to your question about his position – because, yes, those were his policies too. And many of us gave many warnings about what would happen if we had unfunded tax cuts and whether that would be financially and politically viable.”
Still, Hague said he hoped she survived because having yet another prime minister would “extend the credibility” of the Conservative Party too much.
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