British Prime Minister Liz Truss has fired her finance minister after prolonged market turmoil, but restive Conservatives plotted the new leader’s own demise as her right-wing economic agenda imploded.
Kwasi Kwarteng became Britain’s shortest serving finance minister, except for a predecessor who died suddenly in office in 1970, paying the price after Truss’s crash programme of unfunded tax cuts terrified the financial markets.
“You have asked me to stand aside as your Chancellor. I have accepted,” he wrote in his resignation letter to Truss.
The prime minister did little to reassure investors and the UK electorate at a brief news conference – her first since succeeding Boris Johnson on September 6.
She insisted that she had acted “decisively” to bring about “economic stability” – but the pound resumed its slide on currency markets, falling under $1.12.
“We will get through this storm,” she said, taking only four questions, looking nervously around the room and delivering terse replies. “I want to deliver a low-tax, high-wage, high-growth economy. That mission remains.”
Kwarteng, who had rushed back early from international meetings in Washington, was replaced by the centrist former foreign secretary and Tory leadership candidate Jeremy Hunt as Britain’s fourth chancellor this year.
Financial upheaval sparked by the new government’s September 23 plan to slash taxes – financed via billions in more borrowing – had subsided somewhat since the Bank of England (BoE) intervened in bond markets.
However, the central bank was adamant that it would end its bond-buying spree yesterday, and market analysts said only a bigger climbdown by Truss following Kwarteng’s disastrous budget announcement last month would avert fresh panic.
She duly delivered the U-turn by announcing that she would retain the Johnson government’s plan to raise profits tax on companies – having already changed her mind about cutting income tax for the highest earners.
The promised tax reforms were the centrepiece of Truss’s successful pitch to Tory party members that she, rather than moderate rival Rishi Sunak, was the best candidate to replace Johnson.
“This marks the first time in decades – since at least the 90s – that the financial markets have forced the government of a big developed economy with its own central bank to capitulate on core fiscal ambitions,” Evercore analysts said.
A new YouGov poll for The Times newspaper said 43% of Conservative voters want a new prime minister in Downing Street.
Other polls show a mammoth lead up opening up for the main opposition Labour party, threatening electoral meltdown for the Tories.
Labour leader Keir Starmer said that ditching Kwarteng would not “undo the damage made in Downing Street”.
“Liz Truss’s reckless approach has crashed the economy, causing mortgages to skyrocket and has undermined Britain’s standing on the world stage,” he said.
Tony Travers, from the London School of Economics, told AFP that Kwarteng had been made “the fall guy for the government’s mistakes” – but that the sacking had not taken the pressure off Truss or calmed the Tories.
“It’s very hard to see them coming back from this” by the next election, he added.
Kwarteng had been due to stay in Washington this weekend to conclude annual meetings of the International Monetary Fund (IMF) and World Bank, after having earned a rebuke from IMF chief Kristalina Georgieva on the need for “coherent and consistent” policies.
Commenting on the tax U-turn, senior IMF official Alfred Kammer paid credit to the UK’s “strong institutions”, such as the BoE and the Office for Budget Responsibility – both of which were undermined by Truss and Kwarteng.
Also speaking in Washington, European Union economy commissioner Paolo Gentiloni said the upheaval in Britain showed “how prudent we should be also with our fiscal and monetary mix”.
In the US capital on Thursday, Kwarteng had insisted that his job was safe. “I’m not going anywhere.”
However, UK broadcasters showed live footage of Kwarteng’s British Airways plane landing at London’s Heathrow airport a day early, after Truss held hurried meetings with her own financial advisors in his absence.
Multiple reports said that senior Tory MPs were plotting to unseat Truss by installing a new leadership team under Sunak and Penny Mordaunt, who also ran to succeed Johnson.
Party grandees could move next week, senior BBC journalist Nick Watt tweeted.
“They said not tenable for PM to remain after sacking @KwasiKwarteng who was implementing the programme that won her the Tory leadership,” he wrote.
However, Bernard Jenkin, a senior voice on the Tory right, called for “calm” after Hunt’s appointment.
“Rash talk of ditching the PM, or calls for a general election, will not calm the financial markets,” he tweeted.
IN: New Chancellor of the Exchequer Jeremy Hunt.
OUT: Former finance minister Kwasi Kwarteng.
