November 28, 2022

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As Britain’s Truss struggles to get a job, a new finance minister says she’s made mistakes

As Britain's Truss struggles to get a job, a new finance minister says she's made mistakes
  • Truss fired his finance minister on Friday
  • New Chancellor Hunt warns against making tough decisions
  • Bank of England’s Bailey says he agrees with Hunt about the need to fix finances
  • Some conservative lawmakers say Truss will be ousted

LONDON (Reuters) – Britain’s new finance minister Jeremy Hunt said on Saturday some taxes would rise and tough spending decisions were needed, saying Prime Minister Liz Truss had made mistakes as she struggled to keep her job after more than a month on the job. term.

In an effort to appease financial markets that have been in turmoil for three weeks, Truss fired Kwasi Koarting as finance minister on Friday and scrapped parts of their controversial economic package.

With horrific poll ratings for both the ruling Conservative Party and the prime minister in person, and many of her MPs asking, not if, but how Truss should be removed, Truss is counting on Hunt to help salvage her premiership less than 40 days after taking office.

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“We’re going to have some very difficult decisions ahead” to give a candid assessment of the situation the country faces, he said while touring the television and radio studios, saying that Truss and Kwarting had made mistakes and that more changes could be made to their plans.

“The thing that people and markets want and the country needs right now is stability,” Hunt said.

Truss won the leadership contest to replace Boris Johnson on a platform of deep tax cuts to stimulate growth, Kwarteng announced last month. But the absence of any details on how the cuts will be financed has sent markets crashing.

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She has now ditched plans to cut taxes on high-income earners, said the business tax would increase, and dropped her proposal to keep it at current levels. But the slide in bond prices after its press conference on Friday indicates that it has not gone far enough.

The Sunday Times said Hunt would delay a planned cut in the base rate of income tax as part of a desperate attempt to balance the books. According to the newspaper, Britain’s independent financial watchdog said in a draft that there could be a black hole worth 72 billion pounds ($80 billion) in public finances by 2027/28.

meeting of minds

Andrew Bailey, Governor of the Bank of England, said he had spoken to Hunt and they both agreed on the need for fiscal reform.

“There was a very clear and immediate meeting of minds between us about the importance of financial sustainability and the importance of taking action to do that,” Bailey said in Washington on Saturday. “Of course, there was an important action taken yesterday.”

He also warned that inflation pressures may require a larger interest rate increase than previously thought due to the government’s massive energy subsidies for homes and businesses, and its plans to cut taxes.

Hunt is due to announce the government’s medium-term budget plans on October 31, in what will be a major test of his ability to demonstrate his ability to restore the credibility of his economic policy.

“Giving certainty about public finances, how we’re going to pay for every penny we make through the tax and spending decisions that we make, these are very, very important ways in which I can provide certainty and help create stability,” he said. .

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He warned that spending will not rise as much as people want and all government departments will have to find more talent than they had planned.

“Some taxes won’t come down as quickly as people want, some taxes will go up. So it’s going to be difficult,” he said, adding that he would sit down with Treasury officials on Saturday before meeting Truss on Sunday moving forward. plans.

Quarting’s financial statement on September 23 triggered a backlash in financial markets that was so fierce that the Bank of England was forced to step in to prevent pension funds from falling into disarray as borrowing costs soared.

mistakes made

Hunt, a seasoned minister who is seen by many in his party as a safe person, said he agreed with Truss’ basic strategy to get economic growth moving, but added that their approach had not worked.

“There have been some mistakes in the last few weeks. That’s why I’m sitting here. It was a mistake to lower the highest tax rate at a time when we are asking everyone to make sacrifices,” he said.

It was also a mistake, Hunt said, to “evade” and release the tax plans without allowing the independent financial watchdog, the Office of Budget Responsibility, to check the numbers.

The fact that Hunt is the fourth British chancellor in four months is evidence of the political crisis that has gripped Britain since Johnson was ousted in the wake of a series of scandals.

Hunt said that Truss should be judged in an election and on her performance over the next 18 months — not the past 18 days.

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However, you may not get this opportunity. During the leadership contest, Truss had the support of less than a third of conservative lawmakers and has appointed supporters since taking office – alienating those who backed her rivals.

The appointment of Hunt, who ran as leader and then backed her main rival, former Finance Minister Rishi Sunak, is seen as a sign of its extension, but the move has done little to appease some of her party’s critics.

“It’s over for her,” one Conservative MP told Reuters after Friday’s events.

The next major test will come on Monday, when the UK government bond market operates for the first time without the emergency buying support provided by the Bank of England since September 28. Gold prices fell late on Friday after the Truss announcement.

The newspapers said Truss’ position is in jeopardy, but with no desire in the party or state for another leadership election, there is no agreed-upon mechanism for how to replace her.

“Even Liz Truss’ most loyal allies, who look at it through the most rose-tinted glasses available, must now wonder how she can survive,” the Daily Mail, which has previously given staunch support to Truss, said in its editorial.

“But what is the alternative?”

(dollar = 0.8953 pounds)

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Additional reporting by Michael Holden, Alistair Smoot and William Schomberg

Our criteria: Thomson Reuters Trust Principles.