UK Prime Minister Liz Truss sacked the country’s finance minister, Kwasi Kwarteng, on Friday and appointed Jeremy Hunt, a former foreign and health minister, to take over. The move comes amid an economic and political storm that threatens the continuity of its leadership.
On Thursday, Kwarteng had declared he was going nowhere despite the turmoil in financial markets sparked by the government’s controversial economic plans.
Shortly afterward, the London-born ultraliberal of Ghanaian immigrant parents confirmed on Twitter that Truss, his longtime ally, had fired him from his post.
“You asked me to step down as finance minister. I accepted,” Kwarteng wrote in a letter addressed to Truss and posted on his Twitter account.
In an extremely volatile market for days, political instability weighed on the pound, which lost 1.10% against the dollar to $1.1199 and 0.57% against the euro to 86.83 cents.
Just a day earlier, the British currency had soared on speculation about possible changes to Britain’s controversial fiscal policy.
Kwarteng was in Washington to attend the annual meetings of the IMF (International Monetary Fund) and the World Bank, but it was reported on Friday that he was returning to London a day earlier than planned.
As a sign of high media anticipation, local news channels broadcast live the British Airways plane landing on which he arrived at London’s Heathrow airport.
Shortly after, it was announced that Truss would hold an afternoon press conference, and many already speculated that the head of government had fired her finance minister and right-hand man, in an attempt to stay in office.
Liz Truss’ government is under heavy pressure
At this afternoon’s press conference, the prime minister is expected to announce the turnaround in Kwarteng’s £43bn package of unfunded tax cuts.
When announced on September 23, the former minister’s fiscal budget quickly turned into an economic and political disaster and conservative lawmakers were already predicting his resignation.
Among the measures expected to be reversed is a £18bn corporate tax cut – Kwarteng planned to cancel a proposed April increase from 19% to 25%.
The “mini-budget”, including his tax cuts, reflected Truss’s policy and featured prominently in his campaign for the Conservative leadership. Reversing this policy will spell political disaster for her.
Government bonds – at the center of the turmoil that followed Kwarteng’s “mini-budget” last month – have already rebounded from the week’s lows as markets increasingly predict a tax turnaround.
The Gilts extended the rally from Thursday to Friday morning, with the 30-year bond yield falling 0.24 percentage point to 4.31% as the price rose sharply. The pound fell 0.4% to $1,124 against the dollar, curbing an overnight rally that took it to $1,137.
However, an emergency bond-buying program by the Bank of England to bolster gold-exposed pension funds expires on Friday, and investors are worried there will be more turmoil if the government does not reverse its tax cuts.
Market chaos has led many Conservative lawmakers to openly criticize Truss’ leadership and speculate whether his government will survive in the coming months.
“The problem is that she only has about 25% of the parliamentary party supporting her — if that much,” a Tory veteran told the Financial Times. “She has a lot of disaffected MPs to manage.”
The administration’s record low in polls – in one, the Conservatives fell to 19%, with Labor 34 points clear – added to pressure from Conservative lawmakers for Truss to backtrack on his economic plans.
One of the main options the government is exploring is to reverse Kwarteng’s plan to rule out a corporate tax hike next year.
Mel Stride, chairman of the Treasury’s select committee, said on Friday that if the government does not reverse course, it could be punished again by the markets.
“If that doesn’t happen, the markets could have an adverse reaction,” he told the BBC. “So my advice to the Chancellor would be firmly, ‘Do it, do it now, make sure it’s something meaningful, not just nibbling at the edges, but something that’s firm, bold and convincing, and do it as quickly as possible. “
Conservative MP Lord Ed Vaizey added that a U-turn was now “unavoidable”.
“What is being suggested is that there is some kind of compromise that could still be presented as radical economic policy,” he told Sky News.
As the government sought to keep its message public, Commerce Minister Greg Hands said on Friday that the prime minister and chancellor were “absolutely determined to stick to the growth plan”. He told LBC radio: “There is absolutely no plan to change anything except the fact that there will be a mid-term fiscal plan.”
Kwarteng has so far said he would announce that plan — when he would explain how he intends to reduce the debt — on October 31, along with the Budget Accountability Office’s forecasts. But the pressure steadily mounted on the government to act more quickly.
A former cabinet minister has argued that Truss’ recent mistakes are due to the lack of experience of his core team. “It seems like there aren’t enough adults in the room,” he said.
Some senior members have suggested the possibility of replacing Truss with a joint ticket of former Chancellor Rishi Sunak and Penny Mordaunt, leader of the House of Commons.
Former Culture Secretary Nadine Dorries rejected the suggestion on Twitter, writing: “It’s a plot not to remove a prime minister, but to overthrow democracy.”
With Financial Times. Translated by Luiz Roberto M. Gonçalves
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