The British Prime Minister has to bury almost her entire economic policy agenda.
(Photo: Reuters)
London The new British Treasury Secretary, Jeremy Hunt, has almost completely reversed Prime Minister Liz Truss’ tax policy plans. In order to calm the nervous financial markets, Hunt brought forward the turnaround that was originally planned for the end of October and canceled almost all plans for tax cuts.
“We will reverse almost all of the fiscal measures that were announced in the growth plan three weeks ago and for which parliamentary legislation has not yet begun,” the finance minister said in London on Monday afternoon.
The most important goal for Great Britain at the moment is stability. The government wants to do its part. In the afternoon, Hunt will face questions from MPs in the British House of Commons.
At the end of September, Truss and her finance minister, Kwasi Kwarteng, who was sacked last Friday, presented a mini-budget draft consisting of tax cuts on credit and deregulation. The financial markets reacted in shock to the naked bet and the Bank of England had to intervene with massive bond purchases to avert a financial crisis. The aid program expired on Friday, which enormously increased the pressure on the government to act.
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Investors welcomed Hunt’s announcement of a change in UK fiscal policy. Yields on short- and long-dated UK government bonds fell 30 and 40 basis points respectively and the pound strengthened against the dollar.
However, analysts are skeptical that Truss will be able to regain the trust in the financial markets that has been destroyed by changing course. “This chronic credibility problem will not be resolved any time soon,” warned Benjamin Nabarro, chief economist at US bank Citigroup in London.
Britain’s new finance minister is expected to announce an about-face before Parliament today.
(Photo: AP)
Not only did the finance minister reverse Truss’ originally planned reduction in corporate income tax for companies, the initial tax rate is also no longer to fall from 20 to 19 percent next year, as planned. Under pressure from her party, the prime minister had previously had to withdraw the planned reduction in the top tax rate from 45 to 40 percent.
Tax cuts only when the situation allows them
Hunt said there would only be tax breaks when economic conditions allowed. All that remains of Truss’ previous plans is to keep National Insurance contributions unchanged and increase stamp duty allowances on property purchases.
There should also be significant cuts in the energy aid promised by Truss. The state-financed price cap for electricity and gas will initially only apply until April 2023, and not for two years as originally planned. He agreed with Truss “that it would be irresponsible to continue exposing public finances to the unlimited volatility of international gas prices,” Hunt said.
Just last week, Truss refused to impose a time limit on energy aid. “Does he think pensioners should be facing very high energy bills in March?” she asked opposition leader Keir Starmer during parliamentary question time. This is exactly what will happen if their plans are not implemented. Now it is happening.
Further support for consumers and companies beyond the spring should only be granted in a targeted manner in order to limit expenditure. The energy bailout was originally set to cost around £150bn. Hunt initially left other social spending untouched, but announced more “difficult decisions on both taxes and spending” when he presented his budget proposal at the end of October.
Tories plot to overthrow PM
With the sacking of her Treasury Secretary, all core elements of Truss’ economic policy agenda are off the table, and her authority as head of government is openly questioned by parliamentarians from her own Conservative Party. A vote of no confidence and possible successors have already been discussed in crisis meetings within the party.
According to reports in the British media, more than 100 Tory MPs could withdraw their confidence in writing this week. That would normally be enough for an internal party vote of no confidence. According to party rules, however, the prime minister can only be challenged after twelve months. Truss critics are therefore pushing for a change in the statutes. Former Minister of Culture Nadine Dorries brought up not only new elections but also a return of Boris Johnson to the head of government.
More: She is still prime minister, but Liz Truss lost power long ago