London UK Treasury Secretary Kwasi Kwarteng has been sacked by Prime Minister Liz Truss. Truss said at a press conference on Friday that she had to make difficult decisions to ensure economic stability in the country.
At the same time, Truss also buried other parts of her controversial tax reform, which had triggered severe turbulence on the financial markets. The corporate tax rate is now supposed to rise from 19 to 25 percent next April, as planned by the previous government. This will bring £18billion in additional revenue, Truss said.
The head of government admitted that it was clear that her budget plans had gone too far. Therefore, the government must act now to show the financial markets that they take fiscal discipline seriously.
At the IMF meeting in Washington on Thursday, Kwarteng said: “I’m not going anywhere.” On Thursday evening, the Chancellor of the Exchequer was already on the last British Airways plane back to London, where he was fired immediately after his arrival.
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Less than 40 days in office – no British finance minister has failed so quickly. The only one who was there for a shorter time was Iain Macleod in 1970. However, he died of a heart attack.
Kwarteng, on the other hand, was finished off by the financial markets. In recent weeks, yields on ten-year British government bonds have risen to more than five percent at times. Investors ranked the UK riskier than Italy. The Bank of England was forced to purchase bonds of up to £10 billion a day. The pound plummeted.
The trigger for the turbulence: In September, Kwarteng announced tax cuts of 45 billion pounds as the first measure of the new government. Following the example of Margaret Thatcher and Ronald Reagan, the newly appointed Prime Minister Truss wanted to boost the growth of the British economy. However, the shot backfired: debt-financed tax cuts are considered extremely dangerous in the midst of high inflation.
Even the IMF got involved, warning the government that its tax plans would fuel inflation. IMF chief Kristina Georgieva advised “not to prolong the pain”. The government should better adjust its fiscal plans to regain market confidence.
Truss wants to signal a new start – but the party is seething
With Kwarteng’s dismissal, Truss now wants to signal a new start in London. Jeremy Hunt has already been confirmed as the successor. The former foreign secretary under Theresa May and health secretary under David Cameron is considered a reliable all-rounder from the moderate wing of the party. Apparently Truss hopes that he can have a stabilizing influence with his long experience. With the personnel, she also signals that she wants to act more across wings in the future.
Hunt is someone “who shares my desire for a high-growth, low-tax economy,” Truss said. In the struggle for the Tory party leadership in the summer, Hunt, like Truss, had promised tax cuts, but was eliminated in the first round.
Finance Minister Kwasi Kwarteng enters the seat of government via the back entrance. A few minutes later he lost his job.
(Photo: AP)
Kwarteng is a classic pawn sacrifice in this operation. But whether Truss will succeed in saving her own skin by dismissing her confidant is questionable. The economic policy course is too closely linked to her own person – it was not called “Trussonomics” for nothing. She insisted on Friday that she remains committed to her mission of a high-growth economy. But the tax cut project seems to be history for the time being.
Even if the markets should calm down, as it first appeared on Friday, Truss’ position is far from secure. With her about-faces she has further undermined her own credibility. She has never had many supporters in the conservative lower house faction, and there is now open speculation about her replacement. The BBC reports that a group of influential Conservatives will ask Truss to resign next week at the latest.
Tories want to avoid new elections at all costs
The Tories want to avoid an early general election because the Labor opposition leads in polls by more than 30 percentage points. But many MPs cannot imagine having to live with Truss at the helm until the next regular general election in 2024. The names Rishi Sunak and Penny Mordaunt, who lost out to Truss in the party presidency election in the summer, are now being mentioned as alternatives.
Political commentators from various British media also agree that Truss has not yet been saved with Kwarteng’s dismissal. She cannot shift the entire responsibility for the budget plans to the now ex-finance minister – after all, she is said to have been regularly warned about the pitfalls of the plans.
According to media reports, a “council of elders” made up of dozens of former cabinet members is ready to ask the British prime minister to resign.
(Photo: Reuters)
In a survey by the opinion research institute Yougov for the “Times”, 50 percent were in favor of putting Truss out the door, only 9 percent supported the head of government.
With agency material.
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