UK finance minister walks out the back door

We need to act now to reassure the markets… We will ride through this storm and deliver the strong and sustained growth to achieve prosperity.”

Liz Truss, Prime Minister of the United Kingdom.

Liz Truss, Prime Minister of the United Kingdom (UK), last Friday dismissed the Minister of Finance, Kwasi Kwarteng, and tried to save her own position with the modification of her controversial fiscal plan that plunged her into a political and economic storm.

“We have to act now to reassure the markets,” Truss told a news conference.

Kwarteng announced his dismissal early Friday in a letter addressed to Truss and posted on his social media. However, the news was foreshadowed when he unexpectedly returned to London while attending meetings of the International Monetary Fund (IMF) and the World Bank (WB) in Washington.

“You have asked me to step aside as your chancellor. I have accepted”, thus begins the text. The former minister acknowledged that the economic environment has changed since the presentation of his Growth Plan on September 23 and underlined the government’s commitment to fiscal discipline.

“The Medium Term Fiscal Plan is crucial to this end, and I look forward to supporting you and my successor in getting it from the banks,” Kwarteng wrote.

Truss simply replied: “As a long-time friend and colleague, I am deeply sorry to lose you from the government. We share the same vision.”

Twist to your plan, tax increase

After announcing Kwarteng’s removal, Truss announced that the corporate tax will increase to 25% and reversed the program of tax cuts.

In the plan unveiled in September, Kwarteng said corporate tax would be frozen at 19% and scrapped the 25% hike planned by his predecessor, Rishi Sunak, along with a series of unfunded tax cuts whose announcement rattled markets.

Truss assured that the tax increase would strengthen public finances with 18,000 million pounds per year. “We will do what is necessary to get the debt to fall in the medium term,” he mentioned at the press conference.

The 45 billion pound tax cut program aimed at boosting the economy hurt the pound, forcing the Bank of England to intervene to stabilize markets, as well as a political backlash that cost Truss and Kwarteng much criticism.

Jeremy Hunt, the new minister

Jeremy Hunt, a former foreign minister, has been appointed as the new finance minister.

Hunt twice failed to run for the leadership of the ruling Conservative Party, losing to former Prime Minister Boris Johnson and then being eliminated in the first round of voting to Truss’s victory.

In his first statements to the press, Hunt promised to restore the confidence of the markets.

“No government can control the markets,” Hunt said in an interview with the BBC on October 16. “There is one thing we can do: show the markets, the world and the people that we can properly account for every penny of our tax and spending plans.”

Asked if he thinks the markets will trust his plans, Hunt replied, “I think for people who trade the markets, actions speak louder than words.”

Speaking to Sky News, he warned that he will make tough decisions.

“I want to be honest, we will make difficult decisions” and announced that some taxes will not be cut as fast as people would like and others will increase. (With information from agencies)

valores@eleconomista.mx