London Daily

Focus on the big picture.

Pound slides as UK PM sacks finance minister, scraps tax plan in fight to survive

Pound slides as UK PM sacks finance minister, scraps tax plan in fight to survive

LONDON British Prime Minister Liz Truss fired her finance minister Kwasi Kwarteng on Friday and scrapped parts of their economic package in a desperate bid to stay in power and survive the market and political turmoil gripping the country.

Kwarteng said he had resigned at Truss’s request after being forced to rush back to London overnight from IMF meetings in Washington.

Truss, in power for only 37 days, then told a news conference she would now allow a key business levy to rise from next year, raising £18 billion ($20.12 billion), as she accepted she had gone “further and faster” than markets had been expecting.

“We need to act now to reassure the markets of our fiscal discipline,” she said.

Truss appointed Jeremy Hunt, a former foreign and health secretary, to replace Kwarteng.

“You have asked me to stand aside as your Chancellor. I have accepted,” Kwarteng said in his resignation letter to Truss, which he published on Twitter.

She said in response: “As a long standing friend and colleague. I am deeply sorry to lose you from the government.

“We share the same vision.”

The pound slid against the dollar after she spoke, trading 1.2 percent lower on the day at $1.1198 and two-year British government bonds, or gilts, turned negative.

The plan for unfunded tax cuts crushed UK assets and drew international censure, but the pound and gilts have started to recover since the government started looking for ways to balance the books.

Kwarteng is the country’s shortest serving chancellor since 1970, and his successor will be the fourth finance minister in as many months in Britain, where millions are facing a cost of living crisis. The finance minister with the shortest tenure died.

Truss’s own position is in jeopardy.

She won the Conservative Party leadership last month by promising vast tax cuts and deregulation to try to shock the economy out of years of stagnant growth, and the fiscal policy Kwarteng announced on Sept. 23 aimed to deliver that vision.

But the response from markets was so ferocious that the Bank of England had to intervene to prevent pension funds from being caught up in the chaos, as borrowing and mortgage costs surged.

The duo had been under mounting pressure to reverse 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 loves the idea of principles and conviction politicians, but staying in power is everything,” one party insider told Reuters. “Ruthless can also be popular.”

Market Rout


Having triggered a market rout, Truss now runs the risk of bringing the government down if she cannot find a package of public spending cuts and tax rises that can appease investors and get through any parliamentary vote in the House of Commons.

Her search for savings will be made harder by the fact the government has been cutting departmental budgets for years.

At the same time Conservative Party discipline has all but broken down, fractured by infighting as it struggled first to agree a way to leave the European Union and then how to navigate the COVID-19 pandemic and grow the economy.

“If you can’t get your budget through parliament you can’t govern,” Chris Bryant, a senior lawmaker from the opposition Labour Party, said on Twitter. “This isn’t about u-turns, it’s about proper governance.”

Underlining how far Britain’s reputation for sound economic management and institutional stability had fallen, a source within the Group of Seven leading nations said G7 finance ministers at a meeting this week focused on the problems in Britain, and not the usual subject of Italy.

In Washington, Kwarteng was told by the head of the International Monetary Fund of the importance of “policy coherence.” His flight back to London was carried live by television news channels. He was fired minutes after arriving back in Downing Street.

In Westminster, Truss has been trying to find agreement with her cabinet ministers on a way to preserve her push for growth with measures acceptable to her lawmakers that would also reassure financial markets.

Rupert Harrison, a portfolio manager at Blackrock and once an adviser to former British finance minister George Osborne, said markets have now almost fully priced in a U-turn.
“(That) means if the U-turn doesn’t come markets will react badly,” he said on Twitter.

Fighting for survival


A Conservative Party lawmaker, who asked not to be named, said Truss’s economic policy had caused so much damage that investors may demand even deeper cuts rebuild confidence.

“Everything’s possible at the moment,” said the lawmaker, who had backed another ex-chancellor, Rishi Sunak, in the leadership race. “The markets have lost trust in the Conservative Party — and who can blame them?“

According to a source close to the prime minister, Truss is in “listening mode” and 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 around £60 billion through tax cut U-turns and further spending cuts.

“It would be challenging to deliver the scale of these cuts, but for them to be credible, these need to be delivered sooner rather than in the latter part of the forecast,” Punhani said.

The latest bout of political drama to grip Britain comes as the Bank of England also prepares to end its intervention in the gilt market. Truss is the fourth prime minister in six turbulent years of British politics.

Newsletter

Related Articles

London Daily
0:00
0:00
Close
Homeless Displaced in Edinburgh to Accommodate Taylor Swift Fans
Public Uptake of AI Tools Remains Limited
New Tax Rules on Second Homes in the UK to Address Housing Crisis
Can Europe Transition to a War Economy?
France Implements Stricter Airbnb Regulations
Upcoming Pandemic Inevitable, Warns Former UK Chief Scientific Advisor
British Tourists Assaulted by Bouncers in Pattaya, Thailand
Facebook Delays Removal of Fake Account Exploiting TikTok Star
Billionaire Non-Domicile Flees UK Amid Tax Law Changes
Theresa May Admits Mistakes Over Immigration Policies
Nicki Minaj's Manchester Concert Canceled After Amsterdam Arrest
UK Conservative Party Proposes Mandatory National Service at 18
Kate Middleton's Public Absence Throughout 2024
Asylum Seekers Arriving In UK by Sea Exceed 10,000 This Year
UK Criticizes ICJ Order on Israel's Rafah Assault
Ukraine's Fight Against Corruption Gains Ground Amid War
Czech President Petr Pavel Injured in Motorcycle Accident
Record Number of Abortions in England and Wales
Paul McCartney Honours Bruce Springsteen at Ivor Novello Awards
US and UK to Reject ICJ Ruling on Israel's Rafah Offensive
World Court Orders Immediate Halt to Israeli Offensive in Gaza
Understanding FLiRT COVID Variants and Their Impact
Baltic NATO Members to Construct 'Drone Wall'
Global Life Expectancy Dropped By 2 Years Due To COVID-19
Macron Halts New Caledonia Voting Reform After Riots
Rishi Sunak Shelves Rwanda and Smoking Policies Ahead of Election
US Refuses World Court Jurisdiction
China Conducts Surprise Military Drills Around Taiwan
Grim Polls Predict Major Loss for PM Rishi Sunak
Rishi Sunak's Campaign for UK Election: Key Issues Highlighted
German Property Crisis Worsens as Foreign Investment Declines
Princess of Wales's Taskforce Calls for Business Investment in Early Childhood
Campaign Groups Condemn UK Report on Protests
Former Royal Marine Charged with Espionage Found Dead
Australian PM Calls for Julian Assange's Freedom
ICC Seeks Arrest Warrants for Israeli and Hamas Leaders
UK's Infected Blood Scandal: Conclusion Nears After Seven Years
Julian Assange Granted Right to Challenge US Extradition
Congo Army Thwarts Attempted Coup Involving Americans and a British Citizen
Ireland's Homeless Gain Voting Rights
Blinken orders crackdown on Israel-Hamas leaks
Julian Assange Faces US Extradition: Key Facts
Jacob Zuma Takes Campaign to ANC Stronghold Soweto
Attempted Assassination of Slovakia PM Robert Fico: Investigation Ongoing
What Happens If an Iranian President Dies in Office?
Spain Recalls Ambassador After Argentina President's Remarks
Rishi Sunak Faces Cabinet Backlash Over Proposed Changes to Foreign Student Visas
Rwanda Denies Entry to Human Rights Researcher
Iranian President Ebrahim Raisi Reportedly Killed in Helicopter Crash
Blue Origin Resumes Space Tourism with 90-Year-Old Ed Dwight
×