UK Prime Minister Liz Truss’s month-old government is on the brink of collapse after she engineered another humiliating U-turn on planned tax cuts and sacked her finance minister, who was responsible for the proposals.
On Friday (14 October), Truss sacked Chancellor Kwasi Kwarteng, himself only in post for 38 days, and his deputy, Chris Philip, was also moved out of the Treasury. Former health and foreign affairs minister Jeremy Hunt, who served in former Conservative prime minister David Cameron and Theresa May’s administrations, takes over the Treasury portfolio.
“You have asked me to stand aside as chancellor, and I have accepted,” said Kwarteng in a letter posted on Twitter.
Kwarteng had been in Washington until last night at the International Monetary Fund summit.
However, the crisis leaves the UK’s prime minister, who took over from Boris Johnson less than six weeks ago, under pressure from her Conservative party. Senior figures are already drawing up plans to replace her in 10 Downing Street.
Two weeks ago, Kwarteng announced a ‘mini-budget’ with plans to cut income tax across the board to stimulate the UK economy and keep it out of recession.
However, the £45 billion giveaway, which followed the announcement of a programme of over £100 billion of state subsidies to help businesses and consumers pay sharply rising heating bills, was not accompanied by any economic forecasts or plans to cut public spending, prompting a market run on the pound and UK government bonds.
Truss has since ruled out any public spending cuts.
Earlier this week, interest rates on 10-year UK government bonds reached 4.6%, having been below 2% for over a decade until the start of 2022. Analysts also expect the pound to fall to parity with the US dollar before the end of the year.
In a press statement on Friday, the embattled prime minister abandoned plans to cut corporation tax from 25% to 19%.
Last week, her plan to cut the top 45% income tax rate was also scrapped following criticism from the International Monetary Fund, which urged the Truss government to rebalance its fiscal plans to help the UK’s poorest.
The IMF has warned that the UK economy will grow by 0.3% next year against a backdrop of interest rates of between 5% and 6% and inflation at 9%.
The latest political crisis in London does, however, serve as a cautionary tale to EU governments as treasuries across the bloc draw up their own plans to support individuals and businesses during the cost of living crisis, which Russia’s invasion of Ukraine has exacerbated.
Last week, Germany’s plan for a €200 billion aid package for its businesses and households met with an angry reaction from ministers from France, Italy and Spain, who warned that a series of national approaches would risk the fragmentation of the eurozone and increase the gap between rich and poor EU states.
[Edited by Alice Taylor]
Source: euractiv.com
