Kwasi Kwarteng, the UK chancellor who took office just over a month ago, has been ousted after his “mini-budget,” a plan for unfunded tax cuts that many insisted would leave a gaping hole in the UK’s finances, sent the country’s economy into meltdown.
In a press conference confirming Kwarteng’s replacement by Jeremy Hunt, a divisive former health secretary, prime minister Liz Truss acknowledged that the plan had spooked markets and needed to be re-thought. She remained bullish on her long-term vision for a “low tax, high wage, high growth” economy. She added:
“But it is clear that parts of our mini budget went further and faster than markets were expecting, so the way we are delivering our mission right now has to change. We need to act now to reassure the markets of our fiscal discipline.”
A planned rise in corporation tax from 19% to 25%, which the mini-budget had sought to cancel, would go ahead in April after all, Truss confirmed. Hunt, in his new role as chancellor, will lay out further budget plans in November, she said.
Kwarteng wrote to Truss this morning acknowledging that she had asked him to “stand aside,” and adding that “the economic environment has changed rapidly” since the two of them released their plans, which included cutting taxes for the wealthiest in society, on September 23. In her letter to Kwarteng, Truss implied he had made the decision to leave himself.
It remains to be seen whether this U-turn, which many market-watchers said was already priced in, will help to calm the UK economy’s choppy waters. Truss’s position as party leader and head of the UK government has also been called more into question in recent days. She will be hoping the reversal of some of her most divisive policies, which she has defended vocally until today, will be enough to save her.
Brief History: The UK economy’s turbulent month
Sept 6: Liz Truss becomes prime minister after a campaign built on promised tax cuts, and appoints her cabinet.
Sept 23: Kwasi Kwarteng, the new Chancellor of the Exchequer, and Truss announce their mini-budget, calling it a “growth plan” for the economy. The plan includes cutting the income tax for society’s highest earners; reversing a planned rise in corporation tax; and abolishing a rise in National Insurance, a universal tax on UK adults, brought in by the previous administration.
The pound begins to fall against the dollar.
Sept. 26: The pound reaches an all-time low against the dollar.
Sept. 27: The IMF warns the UK to change its course, suggesting that its unfunded tax cuts will increase inequality in the country.
Sept. 29: The Bank of England launches a temporary bond-buying program to try and prevent “material risk” to the UK’s economic stability.
Oct. 3: Truss announces that the mini-budget plan to cut top-rate tax will be abandoned.
Oct. 13: Kwarteng, in Washington DC for meetings of the IMF, insists he is not resigning. He then leaves the meetings suddenly and flies back to the UK.
Oct. 14: Kwarteng announces his sacking. Liz Truss says in a press conference that she is also axing the freeze on corporation tax, meaning it will rise in April. Truss appoints Jeremy Hunt as chancellor. In the same press conference, Truss bats away multiple questions calling on her to apologize and asking if she can remain in office.