Media: UK Treasury chief out as prime minister plans U-turn

LONDON The beleaguered British Prime Minister Liz Truss fired her Treasury chief Friday, as she tried to keep her job after weeks and weeks of turmoil in financial markets. Truss stated that she was trying to “reassure markets of our fiscal discipline” through a planned increase in corporation taxes, which she had previously promised to cut. Truss also fired Kwasi Kwarteng, the Treasury chief, and replaced him with Jeremy Hunt, a former Cabinet minister.

Truss wants to restore order after three weeks of chaos sparked by the government’s tax-cutting “minibudget.” The Sept. 23 statements sent the pound to new lows against the dollar, prompting the Bank of England’s intervention to stop a wider economic crisis.

But this may not be so easy. Truss dismissed a question about her resignation, saying that she was “absolutely determined to see through the promises I made.” But her brief, downbeat news conference does not seem to have reassured her party that her party is in control.

The pound fell by about 1% following Truss’ declaration to $1 .119.

Hunt is a government veteran who has served as former foreign secretary and health secretary. Although he was unsuccessful in his bid to lead the Conservative Party , he is well-respected and could offer stability to Truss as her base grows.

Truss was under pressure to end some of the 43 trillion ($48 bln) in unfunded tax cuts. This had a negative impact on financial markets and forced the Bank of England into action to stop a worsening economic crisis.

Senior Conservative Party members were publicly urging the government to act. On Thursday, the pound rose to 1.7% against the dollar. Bond markets stabilized as investors hoped that Truss would change the economic growth plan.

Truss, a free-market libertarian, came to power last month pledging to cut taxes to spur growth. However, her ability to fulfill that promise is now in doubt.

Abandoning a promise to halt her predecessor’s plan to increase corporation tax from 19% to 25% 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 trillion pounds of tax cuts remain unfunded.

James Athey described the government’s plan as a “Uturn” on the government’s decision to not fund its tax-cutting policies. The risk now is that investors forget that there are far more problems than an ill-advised, ill-timed fiscal ease to deal with.

“Inflation is at multi-decade highs, government borrowing is huge, as is the current account deficit. He said that the rise in mortgage rates and the ongoing war in Ukraine will likely cause the housing market to suffer.

“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 to replace Boris Johnson in July.

Some reports claim that senior Conservatives are planning to replace Truss with an alliance of Penny Mordaunt and Rishi Sunak, who were her closest rivals in the summer party for the party’s leadership. However, it’s not clear how this could be done.