LONDON, ENGLAND – OCTOBER 14: Britain’s Prime Minister Liz Truss attends a press conference within the Downing Street Briefing Room on October 14, 2022 in London, England. After just five weeks within the job, Prime Minister Liz Truss has sacked Chancellor of The Exchequer Kwasi Kwarteng after he delivered a mini-budget that plunged the UK economy into crisis. (Photo by Daniel Leal-WPA Pool/Getty Images)
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LONDON — British Prime Minister Liz Truss on Friday scrapped one other key tax-cutting policy after firing her finance minister, in a bid to placate markets after the federal government’s controversial “mini-budget.”
“It is obvious that parts of our mini-budget went further and faster than markets were expecting,” Truss said in a transient press conference.
Truss scrapped the pledge to reverse predecessor Boris Johnson’s hike of corporation tax from 19% to 25%, a call estimated to revive around £18 billion ($20.1 billion) to the U.K. Treasury’s coffers by 2026.
Finance Minister Kwasi Kwarteng was fired earlier on Friday after lower than six weeks within the job, amid mounting political pressure and market chaos.
Jeremy Hunt is interviewed for Sophie Raworth’s ‘Sunday Morning’ at BBC Broadcasting House in London.
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Jeremy Hunt — a former Health Secretary and Foreign Secretary — was announced as Kwarteng’s successor. Chris Philp, chief secretary to the Treasury, was also replaced by Edward Argar.
Market response
U.K. government bonds — referred to as gilts — rallied sharply ahead of Truss’ news conference. The long-dated 30-year yield briefly touched 4.261% during morning trade. Yields move inversely to prices.
Nonetheless, bond prices gave back gains after the conference, with the 30-year yield returning to around 4.58% by around 3 p.m. U.K. time.
Sterling whipsawed during a volatile session and fell around 1.4% against the dollar after Truss’ speech, trading at around $1.1165.
In her press conference, Truss said she desired to reassure markets of the federal government’s fiscal discipline, and that Hunt shared her “convictions and ambitions” for the country.
The federal government earlier this month abolished its plan to scrap the highest rate of income tax after a considerable public backlash, but which didn’t quell market turbulence.
Kwarteng letter
Kwarteng cut short a visit to Washington on Thursday to fly back to London as government ministers scrambled to handle the market chaos unleashed in recent weeks.
This included a sell-off of long-dated government bonds that led the Bank of England to intervene with a view to save pension funds from collapse, and a spike in mortgage rates for prospective homeowners.
Truss had been under immense pressure to rethink her economic policies, with opinion polls showing support for the ruling Conservative Party collapsing and lawmakers from inside her own party reportedly plotting to oust her after a tumultuous first five weeks in office.
Despite this, each she and Kwarteng had remained publicly resolute in recent days, accusing critics of the federal government’s radical fiscal plans of being a part of an “anti-growth coalition.”
“The economic environment has modified rapidly since we set out the Growth Plan on 23 September. In response, along with the Bank of England and excellent officials on the Treasury we’ve got responded to those events, and I comment my officials for his or her dedication,” Kwarteng said in his resignation letter after being asked to step down.
“It is crucial now as we move forward to emphasize your government’s commitment to fiscal discipline. The Medium-Term Fiscal Plan is crucial to this end, and I stay up for supporting you and my successor to attain that from the backbenches.”
“As I even have said over and over prior to now few weeks, following the establishment was simply not an option. For too long this country has been dogged by low growth rates and high taxation — and that must still change if this country is to succeed,” Kwarteng added in his letter.
“We’ve been colleagues and friends for a few years. In that point, I even have seen your dedication and determination. I feel your vision is the precise one. It has been an honour to function your first Chancellor.”
