Truss is fighting for her job, and a new UK chancellor says she’s made mistakes

LONDON (Reuters) – Britain’s new finance minister, Jeremy Hunt, said on Saturday that some taxes will rise and tough spending decisions are needed, saying Prime Minister Liz Truss has made mistakes as she struggles to keep her job after just over a month. term.

In an effort to appease financial markets that have been in turmoil for three weeks, Truss fired Kwasi Koarting as finance minister on Friday and scrapped parts of their controversial economic package.

With horrendous poll ratings for both the ruling Conservative Party and the prime minister in person, and many of her MPs asking, not whether Truss should be impeached, but how Truss should be removed, she has turned to Hunt to help salvage her premiership less than 40 days after taking office.

“We’re going to have some very difficult decisions ahead,” Hunt said while touring television and radio studios to give a candid assessment of the situation the country faces, saying that Truss and Kwarting had made mistakes.

“The thing that people and markets want and the country needs right now is stability,” Hunt said. “No minister can control the markets. But what I can do is show that we can pay our taxes and spending plans, and that’s going to take some very difficult decisions about both spending and taxation.”

Truss won the leadership contest to replace Boris Johnson on a platform of deep tax cuts to stimulate growth, Kwarteng announced last month. But the absence of any details on how the cuts will be financed has sent markets crashing.

She has now ditched plans to cut taxes on high-income earners, said the business tax would increase, and dropped her proposal to keep it at current levels. But the drop in bond prices after her press conference suggests she hasn’t gone far enough.

meeting of minds

Andrew Bailey, Governor of the Bank of England, said he had spoken to Hunt and they both agreed on the need for fiscal reform.

“There was a very clear and immediate meeting of minds between us about the importance of financial sustainability and the importance of taking action to do that,” Bailey said in Washington on Saturday. “Of course, there was an important action taken yesterday.”

He also warned that inflation pressures may require a larger interest rate increase than previously thought due to the government’s massive energy subsidies for homes and businesses, and its plans to cut taxes.

Hunt is due to announce the government’s medium-term budget plans on October 31, in what will be a major test of his ability to demonstrate his ability to restore the credibility of his economic policy. He said further changes to Truss’ plans were possible.

“Giving certainty about public finances, how we’re going to pay for every penny we make through the tax and spending decisions that we make, these are very, very important ways in which I can provide certainty and help create stability,” he said. .

He warned that spending will not rise as much as people want and all government departments will have to find more talent than they had planned.

“Some taxes won’t come down as quickly as people want, some taxes will go up. So it’s going to be difficult,” he said, adding that he would sit down with Treasury officials on Saturday before meeting Truss on Sunday moving forward. plans.

Quarting’s financial statement on September 23 triggered a backlash in financial markets that was so fierce that the Bank of England was forced to step in to prevent pension funds from falling into disarray as borrowing costs soared.

mistakes made

Hunt, a seasoned minister who is seen by many in his party as a safe person, said he agreed with Truss’ basic strategy to get economic growth moving, but added that their approach had not worked.

“There have been some mistakes in the last few weeks. That’s why I’m sitting here. It was a mistake to lower the highest tax rate at a time when we are asking everyone to make sacrifices,” he said.

It was also a mistake, Hunt said, to “evade” and release the tax plans without allowing the independent financial watchdog, the Office of Budget Responsibility, to check the numbers.

The fact that Hunt is the fourth British chancellor in four months is evidence of the political crisis that has gripped Britain since Johnson was ousted in the wake of a series of scandals.

Hunt said that Truss should be judged in an election and on her performance over the next 18 months — not the past 18 days.

However, you may not get this opportunity. During the leadership contest, Truss had the support of less than a third of conservative lawmakers and has appointed supporters since taking office – alienating those who backed her rivals.

The appointment of Hunt, who ran as leader and then backed her main rival, former Finance Minister Rishi Sunak, is seen as a sign of its extension, but the move has done little to appease some of her party’s critics.

“It’s over for her,” one Conservative MP told Reuters after Friday’s events.

The next major test will come on Monday, when the UK government bond market operates for the first time without the emergency buying support provided by the Bank of England since September 28. Gold prices fell late on Friday after the Truss announcement.

The newspapers said Truss’ position is in jeopardy, but with no desire in the party or the country for another leadership election, there is no agreed mechanism for how to replace her.

“Even Liz Truss’ most loyal allies, who look at it through the most rose-colored glasses available, must now wonder how she can survive,” the Daily Mail, who had previously given staunch support to Truss, said in its editorial.

“But what is the alternative?”

Additional reporting by Michael Holden, Alistair Smoot and William Schomberg; Editing by Emilia Sithole Mataris and Helen Popper

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