On Friday, Truss announced that her growth architect, Kwasi Kwarteng, would be stepping down as chancellor or UK finance minister.
Truss also said her government would abandon one of her top campaign promises – it would now allow the corporate tax to be raised from 19% to 25% in April 2023.
Sterling surged against the dollar on Thursday on the news, although it closed marginally at around $1.12 on Friday. Britain’s largest stock index, the FTSE 100, was little changed.
Kwarteng will be replaced by Jeremy Hunt, who served as UK foreign secretary at a time when Brexit dominated discussions. Hunt lost the 2019 Conservative leadership race to Boris Johnson. In that race, he favored cutting corporate taxes.
He is now Britain’s fourth Chancellor of the Exchequer in four months, taking over the economic policy mix as the Bank of England predicts a recession this winter. The cost of living, especially energy prices, is soaring. Unions are in the spotlight, and mortgage rates are climbing.
During a very short press conference on Friday, reporters asked no questions about the country’s finances, but repeatedly pressed Truss about her future as prime minister.
They asked pointedly why she was sacking her chancellor because her tax cuts had ruined the market when the plan was actually hers. If Kwarteng had to leave, one reporter said, “How can you stay?” Another asked: “What credibility do you have to stay in power?”
Truss acknowledged that it was “clear” that her economic plan was “going further and faster than the market expected.” “As a result, the way we deliver on our mission now has to change,” she explained. “We need to act now to convince the market of our fiscal discipline.”
She stressed that her aim was still to transform the UK into “a low tax, high wage, high growth economy”, but she did not answer how that would be achieved.
“My priority is to ensure the economic stability of our country,” she said, when many economists said it was Truss that caused the current instability.
When Truss confessed: “Honestly, it’s been difficult, but we’ll get through this storm”, it was unclear whether she was referring to the British people or her government.
As she left the 10-minute four-question press conference, a reporter shouted, “Aren’t you saying sorry?” Truss continued to walk.
The rapid unraveling of the Truss plan to support Britain’s future has been spectacular, leaving the country in a daze.
She has been in office for less than six weeks. After Conservative MPs ousted Boris Johnson, saying he was unfit for public office, only 0.3 per cent of the population chose Truss to replace him based on her promise to cut taxes.
Her opponent, former prime minister Rishi Sunak, said it would be reckless to cut taxes before fighting inflation. He called his plan for growth through tax cuts “Fantasy Island” economics.
Investors seem to agree. Kwarteng’s Sept. 23 government announced a new “growth plan” that would be fueled by “the biggest tax cut package in generations”, causing the currency to fall and the central bank to soothe markets.
The Bank of England is set to end the highly unusual intervention, an emergency bond-buying program, on Friday. So the government has calmed investors about what’s coming next.
in a letter Posted on Twitter Friday, Kwarteng wrote, that Truss asked him to resign. “You asked me to stand aside as your prime minister. I accepted,” he wrote. “It’s important now as we move forward to underscore your government’s commitment to fiscal discipline.”
Earlier on Friday, Kwarteng, a freelance marketer and ardent Brexiteer, flew home from Washington to London, and British newspapers tracked his flight.
He has been attending an IMF meeting, his first appearance as chancellor at a major economic summit. He told reporters in Washington that he was “not going anywhere,” although he acknowledged that the market turmoil was partly caused by the government’s fiscal plans. When asked if he and his boss, the prime minister, would have jobs within a month, the prime minister replied: “Absolutely, 100 percent.”
But a dinner reservation with reporters at the British ambassador’s residence in Washington was cancelled, and about 15 minutes later, Kwarteng left in a hurry — and no dinner was served.
“I have great respect for the decision you made today,” Truss wrote to Kwarteng. The language has struck many as odd since she asked him to resign.
Kwarteng’s work lasted only 38 days. Iain Macleod, the only prime minister with a shorter term in office, died of a heart attack 30 days later in 1970.
The Truss government has made a U-turn on the most controversial part of its tax plan, which will involve lowering the top income tax rate paid by high-income Britons. Not only has the associated borrowing made investors nervous, but tax breaks for the wealthy have not been well implemented as Britons struggle to pay for petrol and groceries.
On Friday, Truss scrapped her plan to cut corporate taxes.
She was attacked during the weekly Prime Minister’s Questions session on Wednesday, and later in the day delivered what some participants described as a disastrous performance in a closed meeting with backbenchers.
One lawmaker told the FT, “Honestly, the sentiment is funeral, horrific. I’m appalled at how cruel it is.”
Eurasia Group analyst Mujtaba Rahman said in a Friday briefing that Truss is likely to be ousted before the next election, which must be held by January 2025 at the latest.
He said a group of Conservative MPs were plotting to remove her by Christmas, some of whom had floated the idea of a “moderate dream ticket” for Sunak and Penny Mordault, both in the most recent party. There is hope in the leadership race.
“While some MPs say scrapping the Truss plan would make the Conservatives look more ridiculous than they do now, there is a growing belief that it may be the only way to prevent Labour’s slippage in 2024,” he wrote.
Under the Conservative Party’s current rules, there can be no more leadership contests for a year. But these rules can be changed.
Labour leader Keir Starmer, who has seen his party’s polls soar over the past few weeks, said a change of prime minister “doesn’t remove the damage”.
“Liz Truss’s reckless approach has crashed the economy, sent mortgages soaring and undermined the UK’s position on the world stage,” he wrote on twitter“We need a change of government. Under my leadership Labour will protect the UK economy and get us out of this mess.”