Britain’s New Chancellor of the Exchequer Announces Reversal of Controversial Budget
Prime Minister Liz Truss and former Chancellor Kwasi Kwarteng finalizing their contentious budget plan (Flickr).
Britain’s newly appointed financial minister Jeremy Hunt announced that the United Kingdom will scrap the bold economic plan championed by Prime Minister Liz Truss and Hunt’s predecessor Kwasi Kwarteng on October 17. The plans, which were first announced on September 23, sent the United Kingdom into a mini financial crisis, with markets and the pound both plunging to extreme lows amid fears of recession due to rising costs of living and energy prices.
Throughout her campaign for Prime Minister, Truss advocated an economic growth plan dominated by tax cuts and increased social spending, which critics and economists decried as unfeasible. Three weeks after assuming office, Kwarteng, her Chancellor of the Exchequer and close political ally, detailed the specifics of their budget, which included cutting basic income tax by one percent, a bankers’ bonus cap, a proposed six percent hike in corporate taxes, as well as a cap on household energy bills.
Reactions to these plans were largely unfavorable, souring the first two months of Truss’s leadership and threatening the United Kingdom’s financial stability. On Friday, October 14, Truss announced Kwarteng’s resignation just 38 days after he assumed office, and she replaced him with former foreign secretary Jeremy Hunt. Friday’s news coincided with the established deadline for the Bank of England’s emergency bond-buying program that was launched amid the financial turmoil in the wake of the initial budget announcement.
Without the Bank’s protectionary policy, the newly-appointed Hunt had the weekend to devise a way to divert Britain’s financial situation from its current track towards a recession this winter. Hunt’sannouncement, which he said would help “rebuild investor confidence,” scrapped almost all the proposed tax plans–notably the one percent basic income tax cut–and aggressively trimmed the energy bill cap.
According to Bloomberg, Hunt’s decision removed “£32 billion of the £45 billion of giveaways” and signaled his role as “de facto holder of power in Liz Truss’s government,” which currently faces stark public disapproval and widespread calls for Truss’s resignation.
Despite Kwarteng’s departure, Truss has demonstrated no inclination to resign, and it is unlikely that her Conservative party could find a politically advantageous replacement; nevertheless, experts believe her hold on Downing Street is “untenable.”
Perhaps Hunt’s arrival signals a turn for the better for the Prime Minister; at the very least, Britain’s financial market responded very well to his policy proposals—which Hunt claimed had the full support of Truss. Both the pound and government bond prices rose considerably after his announcement, but according to some experts and lawmakers, the damage has already been done. The new Chancellor will have to introduce even more cuts in public spending in the coming months to avoid a devastating recession and budget deficits.