British Prime Minister Liz Truss fired her finance minister Kwasi Kwarteng on Friday and scrapped parts of their economic package in a desperate bid to stay in power and survive the market and political turmoil gripping the country.
Truss, in power for only 37 days, told a news conference in London she would now allow a key business levy to rise from next year, raising 18 billion pounds, as she accepted she had gone "further and faster" than markets had been expecting.
"We need to act now to reassure the markets of our fiscal discipline," she said. Truss appointed Jeremy Hunt, a former foreign and health secretary, to replace Kwarteng .
Kwasi Kwarteng confirmed on Friday he was asked to resign by Prime Minister Liz Truss, becoming the third chancellor to leave the government this year.
"You have asked me to stand aside as your Chancellor. I have accepted," Kwarteng said in a letter to Truss. "As a long standing friend and colleague. I am deeply sorry to lose you from the government," Truss said in response
"We have been colleagues and friends for many years. In that time, I have seen your dedication and determination. I believe your vision is the right one. It has been an honour to serve as your first Chancellor. Your success is this country's success and I wish you well."
"We have been colleagues and friends for many years. In that time, I have seen your dedication and determination. I believe your vision is the right one. It has been an honour to serve as your first Chancellor. Your success is this country's success and I wish you well."
Kwasi Kwarteng
Kwarteng is the country's shortest serving chancellor since 1970, and his successor will be the fourth finance minister in as many months in Britain, where millions are facing a cost of living crisis. The finance minister with the shortest tenure died.
British government bonds rallied further, adding to their partial recovery since Truss's government started looking for ways to balance the books after her unfunded tax cuts crushed UK asset values and drew international censure.
Kwarteng had announced a new fiscal policy on Sept. 23, delivering Truss's vision for vast tax cuts and deregulation to try to shock the economy out of years of stagnant growth.
But the response from markets was so ferocious that the Bank of England had to intervene to prevent pension funds from being caught up in the chaos, as borrowing and mortgage costs surged.
The duo have since been under mounting pressure to reverse course, as polls showed support for their Conservative Party had collapsed, prompting colleagues to openly discuss whether they should be replaced.
Having triggered a market rout, Truss now runs the risk of bringing the government down if she cannot find a package of public spending cuts and tax rises that can appease investors and get through any parliamentary vote in the House of Commons.
Her search for savings will be made harder by the fact the government has been cutting departmental budgets for years.
At the same time the Conservative Party's discipline has all but broken down, fractured by infighting as it struggled first to agree a way to leave the European Union and then how to navigate the COVID-19 pandemic and grow the economy.
"If you can't get your budget through parliament you can't govern," Chris Bryant, a senior lawmaker from the opposition Labour Party, said on Twitter. "This isn't about u-turns, it's about proper governance."
MARKET ROUT
Having triggered a market rout, Truss now runs the risk of bringing the government down if she cannot find a package of public spending cuts and tax rises that can appease investors and get through any parliamentary vote in the House of Commons.
Her search for savings will be made harder by the fact the government has been cutting departmental budgets for years.
At the same time Conservative Party discipline has all but broken down, fractured by infighting as it struggled first to agree a way to leave the European Union and then how to navigate the COVID-19 pandemic and grow the economy.
"If you can't get your budget through parliament you can't govern," Chris Bryant, a senior lawmaker from the opposition Labour Party, said on Twitter. "This isn't about u-turns, it's about proper governance."
Underlining how far Britain's reputation for sound economic management and institutional stability had fallen, a source within the Group of Seven leading nations said G7 finance ministers at a meeting this week focused on the problems in Britain, and not the usual subject of Italy.
In Washington, Kwarteng was told by the head of the International Monetary Fund of the importance of "policy coherence." His flight back to London was carried live by television news channels. He was fired minutes after arriving back in Downing Street.
In Westminster, Truss has been trying to find agreement with her cabinet ministers on a way to preserve her push for growth with measures acceptable to her lawmakers that would also reassure financial markets.
Rupert Harrison, a portfolio manager at Blackrock and once an adviser to former British finance minister George Osborne, said markets have now almost fully priced in a U-turn.
"(That) means if the U-turn doesn't come markets will react badly," he said on Twitter.
FIGHTING FOR SURVIVAL
Downing Street has so far declined to comment but Kwarteng had not been expected to appear at Truss's news conference later on Friday, fueling speculation about his future.
During his time in the United States Kwarteng had been told by the head of the International Monetary Fund of the importance of "policy coherence," underlining how far Britain's reputation for sound economic management and institutional stability had fallen.
Shortly before 11 a.m. (10:00 GMT) Britain's television news channels switched to carry live footage of a British Airways plane landing at Heathrow, carrying Kwarteng.
In Westminster, Truss was trying to find agreement with her cabinet ministers on a way to preserve her push for growth while also reassuring the markets and working out which of the measures could be supported by her lawmakers in parliament.
Rupert Harrison, a portfolio manager at Blackrock and once an adviser to former British finance minister George Osborne, said markets have now almost fully priced in a U-turn.
"(That) means if the U-turn doesn't come markets will react badly," he said on Twitter.
A Conservative Party lawmaker, who asked not to be named, said Truss's economic policy had caused so much damage that investors may demand even deeper cuts to public spending as the price for their support.
"Everything's possible at the moment," said the lawmaker, who backed Sunak in the leadership race. "Problem is the markets have lost trust in the Conservative Party - and who can blame them?"
According to a source close to the prime minister, Truss is now in "listening mode" and inviting lawmakers to speak to her team about their concerns to gauge which parts of the program they would support in parliament.
Credit Suisse economist Sonali Punhani said markets needed to see a credible fiscal plan, with the government needing to find around 60 billion pounds through tax cut U-turns and further spending cuts.
"It would be challenging to deliver the scale of these cuts, but for them to be credible, these need to be delivered sooner rather than in the latter part of the forecast," Punhani said.
One policy that is expected to be reversed is their plan to hold corporation tax rates at 19%. That had formed a key part of their package after Sunak proposed increasing it to 25% when he was finance minister under Truss's predecessor Boris Johnson.
That could save 18.7 billion pounds by 2026/27.
The latest bout of political drama to grip Britain comes as the Bank of England also prepares to end its intervention in the gilt market.