LONDON – Britain’s new Finance Minister Jeremy Hunt warned yesterday of looming tax hikes as he dramatically reversed course on right-wing Prime Minister Liz Truss’s radical programme of economic reform.
Senior Conservative MPs were reportedly plotting to unseat Truss, possibly within days, aghast at the party’s collapse in opinion polls since she replaced Boris Johnson on September 6.
“Hunt takes full control as plotters circle wounded PM”, The Sunday Times headlined, while The Observer said: “Tories in talks to oust Truss”.
The Times and Telegraph newspapers reported that Hunt was planning to delay a planned cut on the basic rate of income tax, enforcing yet another humiliating climbdown on Truss after she sacked Kwasi Kwarteng as chancellor of the exchequer.
In crisis talks today at the prime minister’s country retreat, Hunt and Truss were set to thrash out a new budget plan that he is due to deliver on October 31, just over a month after Kwarteng’s botched attempt to drive through a slew of unfunded tax cuts.
“There were mistakes,” acknowledged Hunt, whom one ally called the government’s new “chief executive” – with Truss relegated to the role of back-seat chairwoman.
Hunt said Kwarteng and Truss had erred on September 23 in trying to cut taxes for the highest earners, and tried to “fly blind” in presenting their plan without independent forecasts from the Office for Budget Responsibility.
“The prime minister’s recognised that, that’s why I’m here,” Hunt told Sky News.
In one of his first acts on taking office Friday, the new chancellor spoke to Bank of England governor Andrew Bailey, who has had to stage costly interventions to calm febrile bond markets.
Briefing reporters in Washington, Bailey said yesterday: “I can tell you there is a very clear and immediate meeting of minds on the importance of stability and (fiscal) sustainability.”
US President Joe Biden said yesterday he thought the abandoned tax cut reform was a “mistake”.
“I think that the idea of cutting taxes on the super-wealthy at a time when... I disagreed with the policy, but that’s up to Great Britain to make that judgment, not me,” he said.
Tax cuts were the centrepiece of the ill-starred budget announced by Kwarteng and Truss.
But they were financed through billions in extra borrowing, causing panic on financial markets at the prospect of higher inflation, which has already left British households in the grip of a cost-of-living crisis.
‘Clinging on’
“We will have some very difficult decisions ahead,” Hunt said, warning that “all government departments” face spending curbs including welfare, health and defence.
“And some taxes will not be cut as quickly as people want. Some taxes will go up.”
Soon after Hunt’s upcoming fiscal statement, the Bank of England will hold its next rate-setting meeting on November 3.
In a separate speech yesterday, Bailey warned anew that the central bank would “not hesitate” to raise rates to keep soaring inflation under control, and said a “stronger response” than previously expected may have to come.
Truss dismissed Kwarteng hours after he had rushed home early from international finance meetings in Washington, and she staged another U-turn in acquiescing to a significant rise in profits tax levied on companies.
At a subsequent Downing Street news conference, the prime minister took only four questions, glancing nervously around the room and delivering terse replies before abruptly leaving after just over eight minutes.
“Robotic, hesitant, tone-deaf, defiant and still utterly convinced of the purity and necessity of her mission, Liz Truss killed off her political career in a matter of minutes,” Times columnist Jenni Russell wrote.
Asked why she herself should not resign, Truss said she was “absolutely determined to see through what I have promised” – but her comments only served to depress the pound and bond markets further.
Former Conservative leader William Hague said Truss’s premiership now “hangs by a thread”, as the Sunday newspapers recounted bitter infighting among party factions.
Up to 100 letters expressing no confidence in Truss have been submitted by Tory MPs, the Sunday Times said, with opponents said to be coalescing around her defeated leadership rival Rishi Sunak and another one-time foe, Penny Mordaunt.
But with the opposition Labour party surging in the polls, Welsh Secretary Robert Buckland warned his restive colleagues against “throwing another prime minister to the wolves”.
Labour leader Keir Starmer accused Truss of “clinging on”, and demanded an early general election.
“The Tories no longer have a mandate from the British people,” he tweeted, after Truss became prime minister through the votes of some 80,000 Conservative members – less than 0.2% of the UK electorate. – AFP, October 16, 2022
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