UK Treasury Chief Dismantles Economic Plan, Raises Questions About PM’s Future
New Chancellor Jeremy Hunt Scrambles Tax Cuts and Spending Plans
LONDON (AP) — The UK’s new Treasury chief ripped up the government’s economic plan on Monday, 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 more questions about how long the beleaguered British leader can stay in office.
Chancellor’s Address
In a televised address, Chancellor of the Exchequer Jeremy Hunt said 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.
Market Reaction
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.
Government’s Credibility
Truss declined to attend the House of Commons to answer a question on the economy from the leader of the opposition, 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.
Chancellor’s Freedom
Truss’ spokesman said the prime minister and Hunt had jointly agreed on the economic changes. But Hunt told Conservative lawmakers that Truss “backed him to the hilt in making difficult decisions” — suggesting he has a free hand to make policy.
Conservative Values
Scrapping Truss’ plan to reduce the basic rate of income tax by 1 percentage point, Hunt said “it is a deeply held Conservative value — a value that I share — that people should keep more of the money that they earn.”
Background
The government had already ditched parts of its tax-cutting plan and announced it would make a medium-term fiscal statement on Oct. 31, weeks earlier than previously scheduled. Hunt was appointed Friday after Truss fired his predecessor Kwasi Kwarteng, who spent less than six weeks in the Treasury job.
Financial Crisis
Truss and Kwarteng jointly came up with a Sept. 23 announcement of 45 billion pounds ($50 billion) in unfunded tax cuts that immediately spooked the financial markets, sent the pound to record lows and forced the Bank of England to take emergency action.
Market Response
The early response from the markets was positive Monday. The pound rose more than 1% to above $1.13 in London. That pushed the U.K. currency back above where it was trading on Sept. 22, the day before Kwarteng announced the tax cuts.
Economic Experts
Paul Johnson, director of the Institute for Fiscal Studies think tank, said Monday’s announcements “won’t be enough by themselves to plug the gap in the government’s fiscal plans.” “Nor will they be enough to undo the damage caused by the debacle of the last few weeks,” he said. “But they are big, welcome, clear steps in the right direction.”
Conclusion
The financial fiasco has turned Truss into a lame-duck prime minister. She took office just six weeks ago after winning a party election to replace Prime Minister Boris Johnson, who was forced out in July after ethics scandals ensnared his administration. Many Conservatives now believe their only hope is to replace Truss — if the party can agree on a replacement.
FAQs
Q: What did Chancellor Jeremy Hunt say in his address?
A: Hunt said 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.
Q: What is the current state of the government’s economic credibility?
A: The government’s economic credibility has been damaged by the recent financial crisis, and the reversal of policy has further undermined Truss’ authority.
Q: What is the outlook for Prime Minister Liz Truss?
A: Many Conservatives believe that Truss’ only hope is to replace her — if the party can agree on a replacement.
Q: What is the current state of the pound?
A: The pound rose more than 1% to above $1.13 in London, pushing the U.K. currency back above where it was trading on Sept. 22.
Q: What is the view of economic experts on the government’s fiscal plans?
A: Paul Johnson, director of the Institute for Fiscal Studies think tank, said Monday’s announcements “won’t be enough by themselves to plug the gap in the government’s fiscal plans.”