UK PM fires her finance chief, rejects tax cuts to calm markets

Updated October 14, 2022 at 1:56 pm ET

LONDON — British Prime Minister Liz Truss has sacked her finance minister and close ally, Kwasi Kwarteng. Then, hours later, she announced a U-turn in his economic package, attempting to calm financial markets and bolster his shaky leadership position just over a month after taking office.

The government said former Health Secretary Jeremy Hunt will take over as Chancellor of the Exchequer, the UK’s treasury. He is the fourth chancellor this year.

Shortly after firing the finance minister, Truss held a Downing Street news conference and was visibly nervous, saying: “We need to act now to reassure markets about our fiscal discipline.”

He announced he would cancel a proposal to cut corporate tax, a central part of the new government’s economic plan that has thrown British politics and financial markets into turmoil and sent the pound tumbling. at the end of last month.

Truss’s course correction comes as her administration has come under increasing criticism from opposition politicians and lawmakers within her own party, as well as international economists and investors who have continued to divest of British assets.

UK Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng visit a construction site in Birmingham earlier this month.  The two met this morning on financial policy.

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UK Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng visit a construction site in Birmingham earlier this month. The two met this morning on financial policy.

Kwarteng kept his vision

Kwarteng had to leave Washington, DC, early on Thursday night, where he had been meeting with his counterparts at the International Monetary Fund. He and Truss had urgent talks in Downing Street shortly after his return to London.

“When I was asked to be your foreign minister, I did so in the full knowledge that the situation we were facing was incredibly difficult, with interest rates and energy prices rising globally,” Kwarteng said in his departure card. “However, his vision of optimism, growth and change was correct.”

Before her public address, Truss’s office and her supporters had said repeatedly that she would not change her broader focus on boosting economic growth and that she and Kwarteng would continue to work together toward a common goal.

It is not the first change of economic plan

Truss replaced 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 financed.

The proposal led the pound to weaken to a record low against the dollar. Millions of homeowners faced sharp increases in their mortgage rates and government borrowing costs soared. That 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 top earners.

As confidence and anticipation of further changes grew, the pound rose in value on Thursday and bond markets steadied somewhat. And in the minutes following Truss’s speech on Friday, the currency rallied significantly, often a sign of increased investor confidence in a country’s economic future.

Reactions from his party are mixed.

Thérèse Coffey, Deputy Prime Minister and Secretary for Health, who is one of Truss’s oldest allies in Parliament, tweeted his support for Friday’s decisions. He wrote that Truss “did the right thing to act now to ensure the economic stability of our country,” particularly given the deteriorating economic outlook around the world, which he blamed on Russia’s invasion of Ukraine.

Meanwhile, veteran Conservative lawmaker Roger Gale said it was difficult to understand why Truss had pushed Kwarteng out. The wrote on Twitter that the former finance chief was a “good man” who had simply been “promoting the policies she [Truss] was elected” as Conservative leader by rank-and-file members of the party.

However, Gale described the new chancellor, Hunt, as “an experienced pair of hands at the financial helm”.

But former Conservative leader William Hague told Times Radio that he thinks Truss is barely hanging on as prime minister.

“It’s been a catastrophic episode,” said Hague, a former foreign secretary. “And I think it hangs in the balance, it’s the honest answer to your question about where you stand, because, yes, these were also your policies. And a lot of us gave a lot of warnings about what would happen if we had unfunded taxes.” cuts and whether it would be financially and politically sustainable.

Still, Hague said he hoped she would survive because having another prime minister would “stretch the credibility too far” of the Conservative Party.

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