Liz Truss, UK prime minister, has appointed Jeremy Hunt to replace Kwasi Kwarteng as chancellor as she prepares to scrap tax cuts set out in the government’s “mini” Budget less than a month ago.
The government announced the appointment of Hunt, the former health and foreign secretary, who is from the left of the Tory party, ahead of a 2:30pm press conference at which Truss is expected to make the U-turn on Kwarteng’s £43bn package of unfunded tax cuts.
“You have asked me to stand aside as your chancellor. I have accepted,” Kwarteng wrote in a letter to Truss that he posted on Twitter on Friday afternoon. “It is important now as we move forward to emphasise your government’s commitment to fiscal discipline.”
Chief among the measures the government is expected to reverse is an £18bn corporation tax cut — Kwarteng had planned to cancel a proposed increase next April from 19 per cent to 25 per cent.
The former chancellor arrived back in London from IMF talks in Washington on Friday morning and headed straight to Downing Street. Truss continued her clearout of Treasury ministers by moving Chris Philp, the chief secretary, to become paymaster general.
The tax cuts announced in the “mini” budget were very much Ms Truss’s policies and featured prominently in her Tory leadership campaign. A reversal will represent a political disaster for her.
Kwarteng’s resignation letter emphasised that the government’s policies were driven by Number 10, even as he noted that “the economic environment has changed rapidly” since his fiscal statement last month.
Government bonds — at the centre of the turbulence that followed Mr Kwarteng’s fiscal statement last month — have already staged a recovery from the lows of the week as markets increasingly anticipate a U-turn on the tax cuts.
Gilts extended a rally from Thursday into Friday afternoon, with the yield on the 30-year bond down 0.07 percentage points to 4.47 per cent as its price rose sharply. The pound slipped 0.4 per cent to $1.1283 against the dollar.
However, a Bank of England emergency bond-buying programme to shore up gilt-exposed pension funds expires on Friday, with investors concerned that if the government does not roll back its tax proposals, more turbulence could follow.
The market chaos has prompted many Conservative MPs to openly criticise Ms Truss’s leadership and speculate on whether her premiership will survive the coming months.
“The problem is she’s only got around 25 per cent of the parliamentary party backing her — if that,” one veteran Tory told the Financial Times. “She’s got a lot of disgruntled MPs to manage.”
The government’s record-low standing in polls — in one survey the Conservatives have fallen to 19 per cent, with Labour enjoying a 34 point lead — has increased the pressure from Tory MPs for the prime minister to row back on her economic plans.
Mel Stride, chair of the Treasury select committee, argued on Friday that if the government failed to reverse course, it could again be punished by the markets.
“If it doesn’t happen, then the markets may have an adverse reaction to that,” he told the BBC. “So my advice to the chancellor would firmly be: ‘Do it, do it now, make sure it’s something significant, not just nibbling at the edges but something that’s going to be firm, bold and convincing, and do it as soon as possible.’”
Conservative peer Lord Ed Vaizey added that a U-turn was now “inevitable”.
“What is now being kind of mooted is that there will be some sort of compromise that can still be presented as radical economics,” he said, speaking on Sky News.
As the government sought to maintain its public message, trade minister Greg Hands said on Friday that Ms Truss and Mr Kwarteng were “absolutely determined to stick to the growth plan”. He told LBC radio: “There are absolutely no plans to change anything, except for the fact that there is going to be a medium-term fiscal plan.”
One former cabinet minister argued that Ms Truss’s recent missteps were due to a lack of experience in her core team: “Feels as though there are not enough grown-ups in the room.”
Some senior backbenchers have floated the possibility of replacing Ms Truss with a joint ticket of former chancellor Rishi Sunak and Penny Mordaunt, leader of the Commons.
Former culture secretary Nadine Dorries pushed back against the suggestion on Twitter, writing: “It’s a plot not to remove a PM but to overturn democracy.” — Copyright The Financial Times Limited 2022
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