UK finance chief rushes home to face budget storm

AFP , Friday 14 Oct 2022

UK finance minister Kwasi Kwarteng dashed home Friday from Washington for crisis talks with Prime Minister Liz Truss, with both their jobs on the line as their budget plans unravel.

Kwarteng
Britain s Chancellor of the Exchequer Kwasi Kwarteng, answering questions in the House of Commons, in London, on October 11, 2022. AFP

 

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

But the central bank is adamant it will end its bond-buying spree later Friday, and market analysts say only a bigger climbdown by Truss and Kwarteng will avert fresh panic with attendant spillover for UK households and businesses.

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

A Treasury spokesman confirmed Kwarteng had cut short the trip "to continue work on his medium-term fiscal plan" due on October 31, after Truss held hurried meetings with her own financial advisors on Thursday in his absence.

In advance of the much-awaited spending plan, speculation was rife that the politicians would row back on planned changes to corporation tax, having already changed their minds about cutting income tax for the highest earners.

Asked whether he planned another U-turn following his disastrous "mini-budget" on September 23, Kwarteng told Friday's edition of the Daily Telegraph newspaper: "Let's see."

But speaking in Washington on Thursday, the under-fire minister insisted that his job was safe. "I'm not going anywhere," he said.

Truss has "total confidence" in her fellow free-marketeer, international trade minister Greg Hands told Sky News.

However, a new YouGov poll for The Times newspaper said 43 percent of Conservative voters want a new prime minister in Downing Street -- only five weeks after Truss replaced Boris Johnson.

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

'Romcom-worthy dash'

Hands said "I don't recognise" multiple reports that senior Tory MPs were plotting to unseat Truss by installing a new leadership team under her defeated rival Rishi Sunak and Penny Mordaunt, who also ran to succeed Johnson.

Pressed on whether Truss will still be in 10 Downing Street in a week, Hands told ITV: "Oh definitely."

The dismal reaction to the Truss-Kwarteng budget has vindicated Sunak's warnings on the Conservative campaign trail.

"Borrowing your way out of inflation isn't a plan -- it's a fairy tale," he said in one debate clash with Truss, warning of higher interest rates and mortgage repayments for hard-pressed Britons.

She in turn accused her rival of "scaremongering".

The chancellor of the exchequer's September 23 budget sparked markets chaos because of fears it would drive up state debt.

The pound tumbled to a record dollar low and bond yields surged, before stabilising.

With the Bank of England's costly interventions ending Friday, markets have already priced in a fresh volte-face by the government, leaving Downing Street with no room for manoeuvre.

"Do it now," Mel Stride, chairman of the Treasury select committee in the House of Commons, urged Kwarteng.

"If it doesn't happen, then the markets may have an adverse reaction to that," he said on BBC television.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, agreed with Stride's analysis.

"There is a sense of urgency in this move and it would seem the market is optimistic that Kwarteng's romcom-worthy dash through the airport suggests a dramatic reconciliation between stubborn existing policy and the U-turn investors have been waiting for," she commented.

For many pundits, the self-inflicted damage risks proving terminal for Truss and her hard-right platform.

"This is a government in meltdown and an economic policy in tatters, and frankly I think the Conservative party should be hanging their head in shame at what it's putting the country through," senior Labour MP Ed Miliband told Sky News.

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