- New Prime Minister Truss under pressure over economic proposals
- Unfunded tax cut scheme disrupts bond market
- Reporting there can be a shift in corporate tax
- Government opinion polls declined
LONDON (Reuters) – British Chancellor of the Exchequer Kwasi Quarting refused to say on Thursday whether he would stick with his plan to not raise business taxes, as media reported that Prime Minister Liz Truss was rethinking an economic program that plunged markets into turmoil.
Truss’ plan, announced last month, has caused a rout in the government bond market, with some investors and Tory MPs calling for her to back off a plan for unfunded tax cuts of 43 billion pounds ($48 billion), including a move to hold a company . Only 19% tax.
“Our position has not changed, I will come up with a medium-term financial plan on the 31st of October, as I said earlier in the week, and there will be more details after that,” Quarting told BBC television in Washington, where he is. Attending the International Monetary Fund meeting.
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Asked specifically if there will be a reversal of the corporate tax plans, he replied, “My overall focus…is on delivering the mini-budget and making sure we bring growth back into our economy.”
His comments came after Sky News quoted sources as saying discussions were underway on whether to scrap some parts of the plan, and The Sun newspaper said Truss is now considering raising the corporate tax after all.
Truss’s Downing Street office has repeatedly said the government has not reversed the plan.
The pound, which has fallen sharply since Truss emerged as a top candidate for prime minister in August, jumped against the US dollar after reports and British government bond prices recovered some of the heavy losses incurred since Quarting’s “mini-budget” was announced. On September 23.
Asked if there were discussions underway in Downing Street to tear up his group, he said: “I speak to the Prime Minister all the time, and we are fully focused on presenting the growth plan.”
Truss has come under tremendous pressure from within the ruling Conservative Party to change course as polls show support has collapsed, with some lawmakers considering whether she should be removed from office just a month into her tenure as prime minister.
The government has repeatedly said it will stick to most of its plans to cut taxes while also protecting public spending, but economists and critics say something has to be done.
IMF Managing Director Kristalina Georgieva said she and Kwarteng discussed the importance of “policy coherence and clear communication”.
“I think it’s right to be guided by the evidence,” she told reporters. “If the evidence is that there has to be a reassessment, then it is right for governments to do so.” Read more
Amid the turmoil in financial markets and waning support in opinion polls, there has been growing criticism of the government’s sweeping plans from some Conservative lawmakers, many of whom have never wanted to replace Boris Johnson as leader.
“If I were Liz Truss, I wouldn’t have waited for my party to be fired from office. I hope to resign,” Tim Montgomery, founder of the website ConservativeHome, said on Twitter.
“My signature agenda has been vehemently rejected by the country and markets. It would be entirely beneficial to remain in office without assignment, without credibility and without popularity.”
Truss’s spokesman said it was focused on achieving growth and challenges such as the war in Ukraine. Asked if he and Truss would still be at their job next month, Courting replied, “Sure, 100%. I’m not going anywhere.”
Secretary of State James Cleverly said a leadership change would be a “disastrous bad idea, not only politically but also economically.”
Truss, the 47-year-old former foreign secretary, was elected in September by Conservative Party members on a promise to pull the economy out of the stagnation years by cutting taxes and reforming areas such as planning, immigration and employment.
Any reversal of her plans would be a huge embarrassment.
Inconspicuous gear removal mechanism. Under current rules, lawmakers can only write letters to call for a vote of no-confidence when the leader has been in office for a year.
But the fiery selling in the government bond market has driven up borrowing costs and mortgage rates and forced the Bank of England to step in to protect pension funds.
The Bank of England’s emergency bond purchases are set to expire on Friday but many analysts believe it will have to maintain some form of support as investors remain concerned about the government’s plans.
“The central bank is like a doctor: if the patient is really sick, and even if the patient has misbehaved, it is very difficult for the doctor to go,” said Mohamed El-Erian, Allianz’s chief economic adviser and president of Queens. College, Cambridge.
There are already signs that higher borrowing costs are feeding into the real economy as higher mortgage costs cool the housing market.
The Royal Institution of Chartered Surveyors said on Thursday that house prices showed the weakest growth in September since the beginning of the coronavirus crisis, and appear to be heading lower with the recent rise in mortgage rates.
The country’s largest home builder, Barat (BDEV.L), has reported a decline in bookings in recent months, causing it to issue a profit warning after a few strong years for the sector. Read more
(dollar = 0.9040 pounds)
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Additional reporting by William Schomberg, Movija M, Alistair Smoot and Elizabeth Piper in London, David Lauder and Lika Kihara in Washington; Writing by Kate Holton and Michael Holden; Editing by Toby Chopra
Our criteria: Thomson Reuters Trust Principles.
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