Britain’s new finance minister Jeremy Hunt announced on Monday that he was reversing “almost all” of the tax cuts unveiled last month, in a humiliating disavowal for Prime Minister Liz Truss, whose days in Downing Street seem numbered.
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Mr Hunt, who was hurriedly appointed on Friday after his predecessor Kwasi Kwarteng’s ‘growth plan’ threw UK markets into turmoil, insisted in a televised statement on Monday that the government’s priority was now to restore “stability”. Even if it means limiting long-term aid to households in the face of the dramatic soaring energy prices.
The new Chancellor of the Exchequer, who will speak in Parliament later on Monday, has advanced the outline of Britain’s medium-term budget plan due to be presented in full on October 31, attempting to calm markets.
The latter have been plunged into turmoil since the presentation at the end of September of plans for massive tax cuts and colossal support for energy bills by Kwasi Kwarteng. Not fully quantified and to be financed by borrowing, they had raised fears of an exit from the road of public finances.
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The pound had fallen to an all-time low and long-term government borrowing rates had spiked.
Pension funds, which hold a large share of these securities, found themselves weakened. As a result, borrowing rates for households and businesses had also soared, threatening the compromised economic health of the country, which is flirting with recession.
The Bank of England had to intervene to prevent the situation from deteriorating into a financial crisis. The International Monetary Fund (IMF) had urged Downing Street to correct the situation and work in concert with the central bank, which is fighting inflation at nearly 10% and found itself against the tide of the economic plan of Truss, inflationist on the duration.
“No government can control the markets. All governments can give guarantees of the sustainability of public finances”, underlined Mr. Hunt.
“Other tough decisions” are ahead for government spending like taxes, he warned.
After a catastrophic press conference on Friday, the Prime Minister was to meet parliamentarians in the evening to try to convince them, if it is still possible, that she still has a future in Downing Street.
Polls are abysmal and several MPs have publicly said the UK’s fourth prime minister since the Brexit referendum in 2016 must leave. With only 40 days in power on the counter, she risks becoming the prime minister who has had the shortest term ever across the Channel.