On Friday, Truss announced that her growth architect, Kwasi Kwarteng, would be stepping down as Chancellor of the Exchequer, the title of Chancellor of the Exchequer.
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.
now what? The Bank of England is forecasting a recession this winter and, like the U.S., is raising interest rates to quell soaring inflation. The cost of living, especially energy prices, is soaring. Unions are on strike 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 say the trusses are causing the current instability.
When Trastanbee said: “Honestly, it’s going to be difficult, but we’ll get through this storm”, it wasn’t clear whether she was referring to the British people or her government.
As she wrapped up her 10-minute four-question press conference, a reporter shouted: “Aren’t you going to say ‘I’m sorry’?”
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 Tory MPs ousted Boris Johnson, saying he was unfit for public office, Tory members – who make up just 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. Three weeks ago, Kwarteng announced the government’s new “growth plan” that would be fueled by “the biggest tax cut package in generations”, causing the currency to weaken and the central bank to soothe markets.
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 free marketist and ardent Brexiteer, flew from Washington to his home in London as British newspapers tracked his flight. He has been attending an IMF meeting, his first appearance as chancellor at a major economic summit.
“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 government has changed the most controversial part of its tax plan: lowering the top income tax rate paid by high-income Britons.
Wealthy Britons earning more than £150,000 ($168,000) a year are taxed at the top rate of 45%. Truss wants to reduce the top tax rate to 40% from April 2023.
Kwarteng believes that lowering top wage rates above countries such as Norway, Italy and the US will “attract the best and brightest into the UK labour market and help businesses innovate and grow”.
A howl of protest – Kwarteng gave in.
On Friday, Truss then scrapped her plan to cut corporate taxes.
Disaster happened quickly.
A source in the Downing Street prime minister’s office told the BBC on Friday that Truss thought the prime minister was “doing a good job” and the two were “in lockstep”.
The Chancellor of the Exchequer told reporters on Thursday he was “not going anywhere”, although he acknowledged the market turmoil was partly due to the government’s announcement of its fiscal plan.
When asked if he and his boss, the prime minister, would have jobs within a month, the prime minister replied: “Absolutely, 100 percent.”
On Wednesday, Truss was on full display during the weekly prime minister’s questioning, before terrifying later in the day at a private meeting with lawmakers sitting in the backseat, some of whom briefed reporters later, It sounds scary.
One lawmaker told the FT, “Honestly, the atmosphere was very tragic and horrific. I was appalled at how cruel it was.”
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, the last party leaders candidates for the competition.
“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.
The Bank of England was due to end on Friday a very unusual intervention in buying government bonds to stabilize markets. 23 new policy announcements. The bank is particularly worried about some pension funds.