UK's Truss fires finance minister as budget plan in ruins

Britain's Chancellor of the Exchequer Kwasi Kwarteng (L) and Britain's Prime Minister Liz Truss. PHOTO/COMBO/AFP

What you need to know:

  • Analysts noted that even with the new U-turn, Truss's reform package still relied on unfunded tax cuts of £25 billion.

British Prime Minister Liz Truss on Friday fired her finance minister and abandoned the key plank of her right-wing economic platform, battling to salvage her new government as restive Conservatives plotted her own demise.

At her first news conference since succeeding Boris Johnson on September 6, Truss insisted she had acted "decisively" to bring about "economic stability" -- but the pound resumed its slide on currency markets, falling under $1.12.

"We will get through this storm," she said, taking only four questions, delivering terse replies, and prompting one journalist to shout as she left: "Aren't you going to say sorry?"

Truss refused to comment on whether she retains any credibility after dismissing Kwasi Kwarteng as chancellor of the exchequer for implementing her own agenda.

"I want to deliver a low-tax, high-wage, high-growth economy," she said. "That mission remains."

Kwarteng, who had rushed back early from international meetings in Washington, was replaced by the centrist former foreign secretary and Tory leadership candidate Jeremy Hunt as Britain's fourth chancellor this year.

Financial upheaval sparked by the new government's September 23 plan to slash taxes -- financed via billions in more borrowing -- had subsided somewhat since the Bank of England intervened in bond markets.

But the central bank was adamant it would end its bond-buying spree on Friday, and market analysts said only a bigger climbdown by Truss following Kwarteng's disastrous budget announcement last month would avert fresh panic.

She duly delivered the U-turn by announcing she would retain the Johnson government's plan to raise profits tax on companies -- having already changed her mind about cutting income tax for the highest earners.

The promised tax reforms were the centrepiece of Truss's successful pitch to Tory party members that she, rather than rival Rishi Sunak, was the best candidate to replace Johnson. 

That programme now lies in tatters, and Truss's judgement is in question more than ever, after Sunak's warnings were entirely vindicated: higher borrowing to pay for tax cuts served only to terrify the markets and drive up costs for millions of Britons.

Britain's 10-year government bond yield wobbled in afternoon trading.

Collapsing polls

A new YouGov poll for The Times newspaper said 43 percent of Conservative voters want a new prime minister in Downing Street.

Other polls show a mammoth lead up opening up for the main opposition Labour party, threatening electoral meltdown for the Tories. 

Labour leader Keir Starmer said that ditching Kwarteng would not "undo the damage made in Downing Street".

"Liz Truss' reckless approach has crashed the economy, causing mortgages to skyrocket, and has undermined Britain's standing on the world stage," he said.

Tony Travers, from the London School of Economics, told AFP that Kwarteng had been made "the fall guy for the government's mistakes" -- but that the sacking had not taken the pressure off Truss or calmed the Tories.

"It's very hard to see them coming back from this" by the next election, he added.

'Sticking plaster' 

Kwarteng was due to have stayed in Washington this weekend to conclude annual meetings of the International Monetary Fund and World Bank, after having earned a rebuke from IMF chief Kristalina Georgieva on the need for "coherent and consistent" policies.

Speaking in Washington on Thursday, Kwarteng had insisted that his job was safe. "I'm not going anywhere," he said.

But UK broadcasters showed live footage of Kwarteng's British Airways plane landing at Heathrow airport a day early, after Truss held hurried meetings with her own financial advisors on Thursday in his absence.

Multiple reports said that senior Tory MPs were plotting to unseat Truss by installing a new leadership team under Sunak and Penny Mordaunt, who also ran to succeed Johnson.

Party grandees could move next week, senior BBC journalist Nick Watt tweeted.

"They said not tenable for PM to remain after sacking @KwasiKwarteng who was implementing the programme that won her the Tory leadership," he wrote.

Analysts noted that even with the new U-turn, Truss's reform package still relied on unfunded tax cuts of £25 billion.

"The writing was on the wall when markets surged in anticipatory delight on the news that another post budget U-turn was imminent and moves on corporation tax have gone a long way to bolstering sentiment today," AJ Bell financial analyst Danni Hewson said.

"But it's a sticking plaster that's already curling at the edges," she added.

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