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Britain's Chancellor of the Exchequer Kwasi Kwarteng (L) and Britain's Prime Minister Liz Truss. PHOTO/COMBO/AFP

By:

AFP

Posted:

Oct,14-2022 22:04:52

British Prime Minister Liz Truss on Friday fired her finance minister and abandoned the key plank of her right-wing economic platform, battling to salvage her new government as restive Conservatives plotted her own demise.

At her first news conference since succeeding Boris Johnson on September 6, Truss insisted she had acted "decisively" to bring about "economic stability" -- but the pound resumed its slide on currency markets, falling under $1.12.

"We will get through this storm," she said, taking only four questions, delivering terse replies, and prompting one journalist to shout as she left: "Aren't you going to say sorry?"

Truss refused to comment on whether she retains any credibility after dismissing Kwasi Kwarteng as chancellor of the exchequer for implementing her own agenda.

"I want to deliver a low-tax, high-wage, high-growth economy," she said. "That mission remains."

Kwarteng, who had rushed back early from international meetings in Washington, was replaced by the centrist former foreign secretary and Tory leadership candidate Jeremy Hunt as Britain's fourth chancellor this year.

Financial upheaval sparked by the new government's September 23 plan to slash taxes -- financed via billions in more borrowing -- had subsided somewhat since the Bank of England intervened in bond markets.

But the central bank was adamant it would end its bond-buying spree on Friday, and market analysts said only a bigger climbdown by Truss following Kwarteng's disastrous budget announcement last month would avert fresh panic.

She duly delivered the U-turn by announcing she would retain the Johnson government's plan to raise profits tax on companies -- having already changed her mind about cutting income tax for the highest earners.

The promised tax reforms were the centrepiece of Truss's successful pitch to Tory party members that she, rather than rival Rishi Sunak, was the best candidate to replace Johnson.

That programme now lies in tatters, and Truss's judgement is in question more than ever, after Sunak's warnings were entirely vindicated: higher borrowing to pay for tax cuts served only to terrify the markets and drive up costs for millions of Britons.

Britain's 10-year government bond yield wobbled in afternoon trading.

Collapsing polls

A new YouGov poll for The Times newspaper said 43 percent of Conservative voters want a new prime minister in Downing Street.

Other polls show a mammoth lead up opening up for the main opposition Labour party, threatening electoral meltdown for the Tories.

Labour leader Keir Starmer said that ditching Kwarteng would not "undo the damage made in Downing Street".

"Liz Truss' reckless approach has crashed the economy, causing mortgages to skyrocket, and has undermined Britain's standing on the world stage," he said.

Tony Travers, from the London School of Economics, told AFP that Kwarteng had been made "the fall guy for the government's mistakes" -- but that the sacking had not taken the pressure off Truss or calmed the Tories.

"It's very hard to see them coming back from this" by the next election, he added.

'Sticking plaster'

Kwarteng was due to have stayed in Washington this weekend to conclude annual meetings of the International Monetary Fund and World Bank, after having earned a rebuke from IMF chief Kristalina Georgieva on the need for "coherent and consistent" policies.

Speaking in Washington on Thursday, Kwarteng had insisted that his job was safe. "I'm not going anywhere," he said.

But UK broadcasters showed live footage of Kwarteng's British Airways plane landing at Heathrow airport a day early, after Truss held hurried meetings with her own financial advisors on Thursday in his absence.

Multiple reports said that senior Tory MPs were plotting to unseat Truss by installing a new leadership team under Sunak and Penny Mordaunt, who also ran to succeed Johnson.

Party grandees could move next week, senior BBC journalist Nick Watt tweeted.

"They said not tenable for PM to remain after sacking @KwasiKwarteng who was implementing the programme that won her the Tory leadership," he wrote.

Analysts noted that even with the new U-turn, Truss's reform package still relied on unfunded tax cuts of £25 billion.

"The writing was on the wall when markets surged in anticipatory delight on the news that another post budget U-turn was imminent and moves on corporation tax have gone a long way to bolstering sentiment today," AJ Bell financial analyst Danni Hewson said.

"But it's a sticking plaster that's already curling at the edges," she added.

Kwasi Kwarteng failed to get off the mark

Kwasi Kwarteng became the second shortest-serving British finance minister, paying the price for weeks of UK market tumult prompted by his controversial tax-slashing mini-budget.

Britain's dismissed Chancellor of the Exchequer Kwasi Kwarteng walks out of Number 11 Downing Street in central London on October 14, 2022. PHOTO/AFP

His sacking on Friday represents a humiliation for the Cambridge- and Harvard-educated former Chancellor of the Exchequer -- who just the previous day had insisted he was "not going anywhere".

Only Iain Macleod, who died just a month after being appointed in June 1970, has had a shorter stint in the role.

Kwarteng's position became untenable just two weeks after he started on September 6, following his announcement on September 23 of sweeping tax cuts without any costings.

The package spooked currency and bond markets, which were concerned about his mammoth spending commitments, and the Bank of England was forced to make several emergency interventions to stabilise markets in the aftermath.

Liz Truss, who only became prime minister last month following the resignation of scandal-hit Boris Johnson, has since reversed on key parts of the plan, announcing the latest drastic U-turn on Friday.

Truss was voted in by members of her Conservative party on a promise to cut taxes, plans that her rival Rishi Sunak -- who was finance minister under Johnson -- said were a recipe for disaster in the face of spiralling inflation.

'Committed Thatcherite'

Kwarteng's devout belief in liberal economics made him the obvious choice to carry out Truss's plans, despite the warnings.

The pair were also at the forefront of urgent moves to help millions of Britons suffering under the strain of rocketing energy prices that have pushed UK inflation to a 40-year high.

Those spending plans, allied with the tax cuts, sent sterling plunging to its lowest-ever value against the dollar last month, as critics decried the government's "KamiKwasi" economics.

Tony Travers, a professor at the London School of Economics, said Kwarteng was "having the blame pinned on him" but acknowledged that his position had been "compromised by the budget package".

"He and Liz Truss were delivering things they believed in... -- a smaller state with lower taxes," Travers told AFP.

"It might've worked if they'd prepared the ground (by saying) we're going to balance lower taxes by lower spending."

An enthusiastic backer of Brexit, the 47-year-old Kwarteng replaced Iraqi-born Nadhim Zahawi, who himself lasted only two months in the second most powerful job in British politics.

After Johnson's resignation, Zahawi took over from Sunak, who resigned as finance minister in opposition to Johnson before then losing out to Truss in the contest for 10 Downing Street.

Four years before the 2016 Brexit vote, Kwarteng joined Truss and other Tory right-wingers to write a free-market manifesto called "Britannia Unchained", which described British workers as "among the worst idlers in the world".

He enthusiastically endorsed Truss's plans for a "lean state" and to put "money back into people's pockets".

In presenting his doomed budget measures, Kwarteng declared it "a very good day for the UK, because we've got a growth plan".

But disquiet among Tory MPs rose before, during and after the party's fractious annual conference earlier this month, as opinion polls show voters strongly opposed to the budget plan, including its tax cuts for the richest.

Surveys have also shown the main opposition Labour party opening up a massive lead over the ruling Conservatives.

TV swearing

In his former role as energy minister, Kwarteng drew the ire of green groups after he said Russia's invasion of Ukraine meant the UK needed further investment in North Sea oil and gas drilling, to diversify its energy mix.

Britain's first black chancellor of the exchequer, Kwarteng is the London-born son of an economist and lawyer who emigrated from Ghana.

He won a scholarship to the elite private school Eton, before attending both the University of Cambridge and Harvard University.

While at Cambridge, he represented Trinity College on the highbrow quiz programme "University Challenge", earning his first national media exposure for uttering an expletive when he got a question wrong.

Kwarteng worked as a financial analyst and newspaper columnist before being elected as a Tory MP in 2010.

Former department colleague Mark Fletcher said Kwarteng was "fiercely bright and serious" and also a huge cricket fan.

"If you can explain things to him in a cricket analogy you will always get his attention," he told The Times.

Previously in a relationship with senior Tory MP Amber Rudd, Kwarteng is married to lawyer Harriet Edwards, who gave birth to a daughter last year.

Source:

The Monitor