The prime minister has announced a detailed debt reduction program with her finance minister. Above all, the reduction in the top tax rate was criticized.
(Photo: Reuters)
London Britain’s new Prime Minister, Liz Truss, is trying to contain the damage after the pound slumped as a result of her borrowing plans. She should have done more to prepare the ground for her project, Truss told the BBC on Sunday. “I learned from that.”
However, she stands by the package that provides for tax breaks and massive national debt. She still wants to stick to these plans. “And I stand by the fact that we announced it quickly because we had to act.”
At the start of the Conservative Party conference, the prime minister had to put up with criticism from the population and from within her own ranks. In a recent survey conducted by the opinion research institute Opinium for the “Observer”, the approval ratings for Truss among Britons fell from -9 to a value of -37 within a week – according to the institute, lower than the value of Ex- Prime Minister Boris Johnson shortly before his forced resignation (-28).
Opinium expert James Crouch called the opinion poll “the worst poll result for a Conservative Prime Minister since 2010”. Within a few weeks, Truss had as little approval as Johnson or ex-Prime Minister Theresa May at the end of her term. Another poll by polling firm Yougov found that more than half of Brits (51 percent) want Truss to resign.
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At the four-day party conference in Birmingham, Truss has to convince the members of her own party of her plans, because resistance is growing there too. Ex-Minister Michael Gove slammed the Truss government’s tax plans on the BBC, which sent shockwaves through Britain’s financial markets over the course of the week.
Some Tories are considering withholding approval in Parliament
Some Tories are reportedly considering voting against the plans in Parliament, including abolishing the top tax rate for top earners. However, party general secretary Jake Berry threatened such rebels in the Sky News interview with expulsion from the party.
Truss’ growth plan, which was presented about a week ago, has been criticized for providing billions in additional spending – but hardly any details on how this is to be financed in the short term. According to experts, the measures could cost the equivalent of almost 230 billion euros.
Finance Minister Kwasi Kwarteng also left details open on Saturday. In an article for the Telegraph newspaper, he merely confirmed that he would present a “credible plan” for debt reduction in November.
There will also be a commitment to bringing public spending under control. It is clear that the measures announced were not met with approval everywhere. But you had no choice.
>> Read also: “We had to act urgently” – Truss defends tax cuts against heavy criticism
The rating agency S&P recently joined the skeptical view of other institutions and lowered the outlook for British government debt from “stable” to “negative”. The agency Moody’s and the International Monetary Fund (IMF) also have concerns. A worse rating can mean that higher interest rates have to be paid to take on new debt – which limits the scope for action.
Tory leader: Markets may have overreacted
It is unclear whether the plans will cause the debt to rise further or whether the measures will pay for themselves, as the government hopes. On the foreign exchange market, the pound fell to its lowest level in 37 years against the dollar last week.
The bond market also went downhill. Ultimately, the British central bank intervened to mitigate the upheaval. Conservative leader Jake Berry said on Sunday markets may have overreacted. “So let’s see where the markets are in six months time,” he told Sky News.
The project is also controversial in the conservative party of Truss. The main issue here is the planned abolition of the highest income tax rate of 45 percent. Some conservatives worry about being seen as the party that cuts taxes on the wealthiest while doing little for the weakest. Truss said she supports eliminating the top tax rate.
However, the decision was made by Kwarteng. Truss left open the question of whether the elimination of some taxes would have to be paid for with cuts in public services.
Criticism of Kwarteng party with hedge fund managers
Kwarteng is also heavily criticized. According to a report in the Sunday Times, after the announcement of the economic plans, the politician attended a party with hedge fund managers who benefited financially from the fall in the British pound and encouraged Kwarteng in his course.
At the start of her Conservative Party’s convention, Truss announced a concrete step towards reducing bureaucracy. From Monday, companies with fewer than 500 employees will be considered small businesses, it said in a statement. The limit is currently 250. This would allow 40,000 more companies to use simplified regulations.
More: Truss jeopardizes Britain’s economic fortunes