LONDON (AP) — Embattled British Prime Minister Liz Truss fired her Treasury chief and reversed course on much of her tax-cutting economic plan on Friday as she struggled to keep her job after weeks of turmoil in the financial markets. But the market response was subdued and the political reaction to what many saw as panic attacks left Truss’s credibility in tatters after just six weeks in office.
At a hastily arranged press conference, Truss said she was acting to “reassure markets of our fiscal discipline” by dropping her promise to scrap a planned corporate tax hike. Earlier, she fired her close friend Kwasi Kwarteng as head of the Treasury and replaced him with Jeremy Hunt, a long-serving lawmaker who previously held three posts as Cabinet minister.
Truss is trying to restore confidence and rebuild credibility with international investors and members of her own party after the “mini budget” she and Kwarteng unveiled three weeks ago sparked political and economic turmoil.
The government’s announcement on September 23 that it planned to cut taxes by 45 billion pounds ($50 billion) without detailing how it would pay them or offering an independent analysis of the impact on public finances raised fears that government borrowing does not reach unsustainable levels.
This caused the pound to plunge to a record low against the dollar and forced the Bank of England to intervene to prevent a wider economic crisis.
Truss has now reversed around £20bn of the originally planned tax cuts.
But her brief and pessimistic press conference is unlikely to have reassured Truss’ Conservative Party that she is in control.
“I think she has just confirmed that she is not the right person for the job,” said Tim Bale, professor of politics at Queen Mary University of London. “I don’t think it communicated the kind of confidence the country needs right now.”
Despite backtracking on much of her agenda, Truss clung to the idea that her policies were what the country needed to spur economic growth. She also avoided repeated questions about why she should remain in office when she and Kwarteng were equally responsible for the government’s economic plan and the fallout it triggered.
“I’m absolutely determined to deliver what I promised,” Truss said.
Initial investor response suggested that Truss’s measures may not be enough to calm financial markets.
Yields on 10-year government bonds rose immediately after his press conference, indicating that investors are still concerned about government debt. The pound fell 1.2% against the US dollar.
The next big test for Truss will come on Monday when trading resumes in financial markets. The Bank of England on Friday ended its emergency intervention to stabilize long-term bond prices and protect pension funds.
“Whether or not she remains prime minister, her whole agenda now, her ability to pursue her political project, if you will, is really out of her hands,” said Jill Rutter, a senior fellow at the Institute for Government, a London-based think tank.
“Its fate is now in the hands of the markets.”
Truss also faces pressure from across the political spectrum.
The opposition Liberal Democrats have called for an emergency weekend session of the House of Commons for Hunt to provide more details on the government’s economic plan. Scottish First Minister Nicola Sturgeon has called for a snap general election. And the BBC has reported that a group of senior Tory lawmakers are planning to call for Truss’s resignation next week.
Truss’ future is in doubt less than six weeks after taking office as he vowed to reinvigorate Britain’s economy and put the nation on a path to “long-term success”.
A small-state, low-tax conservative who draws inspiration from 1980s Prime Minister Margaret Thatcher, Truss argued that cutting taxes, cutting bureaucracy and seeking investment would spur growth economy and generate more revenue to pay for public services.
But the September 23 tax cut plan provided only half of the equation. Without an independent analysis of her comprehensive economic program, the additional growth it will produce, and the additional tax revenues likely to be created, she was asking investors and voters to believe that the sums would eventually add up.
Truss said Friday that Hunt would unveil the full economic plan on Oct. 31, along with an analysis from the Independent Office for Fiscal Responsibility.
James Athey, chief investment officer at fund manager abrdn, described Truss’ decision as a “reverse on its decision not to reverse its outsized tax cut policies”. And, Britain still faces myriad problems, he said.
“Inflation is at a multi-decade high, government borrowing is huge, as is the current account deficit. The housing market is likely to take a hammer blow from soaring mortgage rates and the war. in Ukraine is rumbling,” he said.
“We may have been through the worst of the volatility, but I fear the UK is far from out of the woods.”
Conservative lawmakers are debating whether they should try to oust their second leader this year. Truss was elected last month to replace Boris Johnson, who was forced out in July.
The weeks of financial turmoil have helped the opposition Labor party to a considerable lead in the opinion polls. A national election is not due until 2024, but many conservatives fear the party will run out of time to close the gap.
Grumpy Tory lawmakers are scrambling to find a unity candidate who could replace Truss, with speculation centering on Hunt and two of the rivals who lost to Truss in the summer leadership race: Rishi Sunak and Penny Mordaunt .
Danica Kirka and Jill Lawless, The Associated Press
