The UK’s new Treasury chief has ripped up the government’s economic plan, dramatically reversing most of the tax cuts and spending plans that new Prime Minister Liz Truss announced less than a month ago.
The move raises further questions about how long the British leader can stay in office, although Truss insists she has no plans to quit.
UK Chancellor of the Exchequer Jeremy Hunt said Monday that he was scrapping “almost all” of Truss' tax cuts, along with her flagship energy policy and her promise – repeated just last week – that there will be no public spending cuts.
While the reversal of policy calmed financial markets and helped restore the government’s economic credibility, it further undermined the prime minister’s rapidly crumbling authority and fueled calls for her to step down before her despairing Conservative Party forces her out.
Truss declined to attend the House of Commons to answer a question on the economy from the leader of the opposition Labour Party, Keir Starmer, sending House of Commons leader Penny Mordaunt in her place.
Mordaunt denied a lawmaker's suggestion that Truss was “cowering under her desk” to avoid scrutiny.
Watch the Chancellor @Jeremy_Hunt’s statement outlining the measures being brought forward from the Medium-Term Fiscal Plan that will support fiscal sustainability.https://t.co/faGd6A9YVp pic.twitter.com/1MWp4Y2ewv
— HM Treasury (@hmtreasury) October 17, 2022
Truss’ spokesman said the prime minister and Hunt had jointly agreed on the economic changes.
But Hunt told Conservative MPs that Truss “backed him to the hilt in making difficult decisions” – suggesting he has a free hand to make policy.
With Truss sitting silently beside him, Hunt told lawmakers that he was canceling Truss' plan to reduce the basic rate of income tax by 1 percentage point and most of her other libertarian economic policies.
In a message aimed squarely at reassuring the financial markets, he said Britain was “a country that funds our promises and pays our debts.”
“And when that is questioned, as it has been, this government will take the difficult decisions necessary to ensure there is trust and confidence in our national finances,” he added.
Financial meltdown
Hunt was appointed on Friday after Truss fired his predecessor Kwasi Kwarteng, who spent less than six weeks in the Treasury job.
Hunt is seeking to restore the Conservative government’s credibility for sound fiscal policy after Truss and Kwarteng rushed out a plan for tax cuts without detailing how they would pay for them.
On 23 September, Truss and Kwarteng jointly announced £45 billion (approx. €51 billion) in unfunded tax cuts that immediately spooked the financial markets.
The cuts fueled investor concerns about unsustainable levels of government borrowing, which pushed up government borrowing costs, raised home mortgage costs and sent the pound plummeting to an all-time low against the dollar.
The Bank of England was then forced to intervene to protect pension funds, which were squeezed by volatility in the bond market.
Over the weekend, Hunt has been dismantling that economic plan. The government had already ditched parts of its tax-cutting plan and announced it would make a medium-term fiscal statement on 31 October, weeks earlier than previously scheduled.
On Monday, Hunt scaled back a cap on energy prices designed to help households pay their bills.
It will now be reviewed in April rather than lasting two years – sweeping away one of Truss' signature plans to help Britons facing a cost-of-living crisis as food, fuel and mortgage prices soar.
Hunt told lawmakers that the measures he announced would save £32 billion a year, but that spending cuts were also on the horizon – “There remain, I’m afraid, many difficult decisions to be announced.”
WATCH LIVE: Prime Minister @TrussLiz hosts a press conference: 14 October 2022 https://t.co/iqppVBhORM
— UK Prime Minister (@10DowningStreet) October 14, 2022
'Mistakes were made'
The financial fiasco has turned Truss into a lame-duck prime minister, just six weeks after winning an internal party election to replace former Prime Minister Boris Johnson.
Johnson was forced out in July after ethics scandals ensnared his administration.
Many Conservatives now believe their only hope is to replace Truss – but they are divided about who should take over.
In a BBC interview, Truss conceded that she had made mistakes but vowed, “I will lead the Conservatives into the next general election.”
Few believe that will be possible.
The Conservative Party still commands a large majority in Parliament, and – in theory – has two years until a national election must be held.
However, polls suggest holding an election now would be a wipeout for the Tories, with the Labour Party winning a big majority.
(AP)
