British PM removes Kwarteng as finance minister amid row over economic plan

Embattled British Prime Minister Liz Truss sacked her Treasury chief and reversed course on sweeping tax cuts Friday as she tried to hang on to her job after weeks of turmoil in the financial markets.

This even as rebels on the backbenches of the UK’s governing Conservative Party are said to be plotting to replace Truss as party leader and PM with a so-called “unity” joint ticket team involving former leadership rival Rishi Sunak

At a hastily arranged news conference, Truss said she was acting to “reassure the markets of our fiscal discipline” by keeping a planned increase in corporation tax that she previously said she would cut. She also fired Kwasi Kwarteng as Treasury chief, replacing him with former Cabinet minister Jeremy Hunt.

Truss is trying to restore order after three weeks of turmoil sparked by the government's tax-cutting “mini budget”. The September 23 statement sent the pound plunging to record lows against the dollar and led the Bank of England (BoE) to step in to prevent a wider economic crisis.

But it may not prove so simple. Truss brushed off a question about whether she should resign, saying, “I am absolutely determined to see through what I have promised.” But her brief conference is unlikely to have reassured her party that she is in control. The pound fell by around 1 per cent versus the dollar after Truss' statement.

Hunt is a government veteran who has served as former foreign secretary and health secretary. He ran unsuccessfully to lead the Conservative Party in 2019, but is widely respected and may offer stability to Truss as she seeks to shore up her base.

Truss had been under intense pressure to scrap some of the £43 billion ($48 billion) in unfunded tax cuts that roiled financial markets and led the BoE to step in to prevent a wider economic crisis. Senior members of the Conservative Party were publicly advising the government to take action. 

According to a YouGov poll for The Times, almost half of Tory party supporters believe the party chose the wrong candidate in the leadership election. The poll found that among those who voted for the Conservatives at the last election, 62 per cent said party members had made the wrong choice when the race was shortlisted between Truss and Sunak, compared with 15 per cent who said they had got it right. It has led panicked Tory members of Parliament to start considering alternatives in the candidates who secured the most votes within the parliamentary party – the 42-year-old British Indian former Chancellor, who was the frontrunner with his colleagues, and Leader of the Commons Penny Mordaunt, who came in third.

Truss, a free-market libertarian, came to power last month pledging to cut taxes to spur growth. But her ability to deliver on that commitment is now in doubt.

From left: Jeremy Hunt, former foreign secretary and health secretary, has replaced Kwasi Kwarteng as Treasury chief, even as PM Liz Truss firefights turmoil in the financial markets; her rival Rishi Sunak's popularity has risen

Abandoning a promise to halt her predecessor's plan to increase corporation tax from 19 per cent to 25 per cent marks a major departure for Truss — an acknowledgement that the markets needed to be reassured of fiscal discipline. The change reduces the bill for her program by about 18 billion pounds a year.

Some 25 billion pounds of tax cuts remain unfunded.

James Athey, the investment director at abrdn, described the government plan as a “U-turn on its decision not to U-turn on its profligate tax-cutting policies". Rumours that it would occur calmed markets, he said.

“The risk now is that investors have forgotten that there are significantly more problems than just an ill-advised and ill-timed fiscal easing to deal with," he said.

“Inflation is at multi-decade highs, government borrowing is huge, as is the current account deficit. The housing market is likely to suffer a hammer blow from the jump in mortgage rates and the war in Ukraine rumbles on," he said.

"We may well be through the worst of the volatility but I fear that the U.K. is nowhere near out of the woods.” Conservative lawmakers are agonizing over whether to try to oust their second leader this year. Truss was elected last month to replace Boris Johnson, who was forced out in July.

Some reports suggest senior Conservatives are plotting to replace Truss with a joint ticket of Rishi Sunak and Penny Mordaunt, her two closest rivals in the summer contest for leadership of the party, though it's unclear how that could be achieved.