Liz Truss sacks chancellor and makes another budget U-turn

British prime minister Liz Truss sacked her chancellor of the exchequer Kwasi Kwarteng and shredded her economic strategy on Friday. But her attempt to salvage her premiership failed to convince financial markets and Conservative party MPs.

In a cursory Downing Street press conference of less than 10 minutes, Ms Truss announced that Jeremy Hunt, former foreign secretary, would become her new chancellor of the exchequer and backtracked on her promise to avoid an £18 billion (€20.7bn) corporation tax increase.

“We need to act now to reassure the markets of our fiscal discipline,” she said, as she acknowledged that parts of last month’s mini-budget, which contained £45 billion (€51.7bn) of unfunded tax cuts, “went further and faster than markets were expecting”.

But on the day that a Bank of England emergency bond-buying programme ended, her comments failed to reassure markets with sterling and stock market indices falling and bond yields rising sharply.

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'I want to be honest': UK PM fires Chancellor and U-turns on tax policy after tumultuous week

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Taoiseach reacts

Speaking in Galway, Taoiseach Micheál Martin said he was reluctant to get involved in the internal political situation in the United Kingdom.

“The United Kingdom is our nearest neighbour and … we’re very anxious for a strong relationship between Ireland and Britain, between the United Kingdom and the European Union. There have been developments obviously post the UK budget. I hope that things will settle and that collectively we can focus on the big issues facing both the United Kingdom, Ireland and Europe.”

Minister for Finance Paschal Donohoe, who is in Washington DC for the annual meeting of the IMF and World Bank as head of the Eurogroup of euro-zone finance ministers, said it was not the place of the Eurogroup to give advice to the new British chancellor on taking office but would offer friendship and co-operation to the UK.

“We will continue to work closely with the new chancellor as we have with all other chancellors up to this point.”

Ms Truss told the Number 10 press conference: “I want to be honest — this is difficult but we will get through this storm.” She left after eight minutes, with one journalist shouting: “Are you out of your depth, prime minister?”

Many Tory MPs maintain that Truss cannot survive Friday’s reverse, in which she conceded that corporation tax would rise from 19 per cent to 25 per cent next April — as planned by ex-chancellor Rishi Sunak, her former rival for the party leadership.

While Ms Truss said the move would raise £18 billion, helping to fill the £45 billion fiscal gap created by the mini-budget, the corporation tax cut had featured prominently in her Tory leadership campaign. The government had already been pushed by MPs into a £2 billion U-turn on its plan to axe the 45p top rate of tax.

“The problem is she’s only got around 25 per cent of the parliamentary party backing her — if that,” said one veteran Tory. “She’s got a lot of disgruntled MPs to manage.”

Public spending

The prime minister said the corporation tax U-turn was a “downpayment”, suggesting that other tax cuts could be reversed before Mr Hunt is due to present a new medium-term plan to cut debt on October 31st, although Number 10 said no new changes were planned.

The prime minister also suggested that she would cut public spending plans in an attempt to reassure markets that debt was under control, announcing that “spending will grow less quickly than previously planned”.

Ms Truss said she was “incredibly sorry” to lose Mr Kwarteng, who she sacked as chancellor soon after he arrived back in London on an overnight flight from Washington, where he had been attending IMF meetings.

One Tory MP who spoke to the former chancellor said Mr Kwarteng was in a “state of shock”. A day earlier he had said he was “not going anywhere”, but he flew back into a political storm. — Copyright The Financial Times Limited 2022