Britain’s new finance minister says he made a mistake as he fights for Truss job

  • Truss sacked the finance minister on Friday
  • New Chancellor Hunt warns of tough decisions
  • The BoE’s Bailey agrees with Hunt on the need to fix finances
  • Some conservative lawmakers say the truss will be scrapped

LONDON, Oct 15 (Reuters) – Britain’s new finance minister, Jeremy Hunt, said on Saturday some tax increases and tough spending decisions were needed, saying Prime Minister Liz Truss had made a mistake in fighting to keep her job. Period.

In an attempt to calm financial markets that have been in turmoil for three weeks, the Truce on Friday fired Kwasi Kwarteng as its head of the treasury and scrapped parts of its controversial economic package.

With the ruling Conservative Party and the prime minister personally in poor poll ratings, many of his own lawmakers are asking how Truss should be removed, Truss is counting on Hunt to save his premiership within 40 days. takes office.

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“We will be making some tough decisions,” he said in a stark assessment of the situation facing the country as he toured TV and radio studios, saying Truss and Quarteng had made a mistake and that further changes to his plans were possible.

“What people want, what markets want, what the country needs now, is stability,” Hunt said.

Truss won the leadership race to replace Boris Johnson on a platform of big tax cuts to stimulate growth, which Kwarteng formally announced last month. But the lack of details on how the cuts would be financed sent markets into meltdown.

He has now ditched plans to cut taxes for high earners and said taxes on business would rise, abandoning his plan to keep them at their current level. But a drop in bond prices after his news conference on Friday suggested he didn’t go far enough.

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The Sunday Times said Hunt would delay a planned cut in the basic income tax rate as part of a desperate bid to balance the books. According to the newspaper, Britain’s independent financial watchdog said in a draft forecast there could be a 72 billion pound ($80 billion) black hole in public finances by 2027/28.

‘Meeting of Minds’

Bank of England (BoE) Governor Andrew Bailey said he had spoken with Hunt and they agreed on the need to fix public finances.

“We had a very clear and immediate meeting about the importance of fiscal stability and the importance of taking steps toward that,” Bailey said in Washington on Saturday. “Certainly, an important step was taken yesterday.”

He also warned that inflationary pressures due to the government’s huge energy subsidies for households and businesses and its tax cut plans may require bigger interest rate hikes than previously thought.

Hunt is due to announce the government’s medium-term budget plans on October 31, which will be a key test of its ability to show its economic policy can restore credibility.

“Providing certainty over public finances, how we’re going to pay for every penny we get through the tax and spending decisions we make, these are very, very important ways, I can say with certainty, and help create stability,” he said. .

He warned that costs will not rise as much as people would like, and that all government departments will have to find more efficiency than they plan for.

“Some taxes won’t be cut as quickly as people would like, and some taxes will go up. So it’s going to be difficult,” he said, adding that he will sit down with Treasury officials on Saturday before meeting the truce on Sunday. projects.

Kwarteng’s September 23 financial report sparked a backlash in financial markets that was so ferocious that the BoE had to intervene to prevent pension funds from spiraling into chaos as borrowing costs rose.

‘Mistakes Made’

Hunt, an experienced minister and seen by many in his party as a safe pair, said he agreed with the Truss’ basic strategy of kickstarting economic growth, but he said their approach was not working.

“Some mistakes have been made in the last few weeks. That’s why I’m sitting here. It was a mistake to cut high taxes at a time when we’re asking everyone to make sacrifices,” he said.

That, too, was a mistake, Hunt said, “flying blind” and preparing the tax plans without allowing the independent fiscal watchdog, the Office for Budget Responsibility, to verify the figures.

Hunt becoming Britain’s fourth Chancellor of the Exchequer in four months is a testament to the political crisis in Britain since Johnson was sacked following a series of scandals.

Hunt said Truss should be judged on his performance over the past 18 days β€” and an election β€” over the next 18 months.

However, she may not get that chance. During the leadership race, Truss won the support of less than a third of conservative lawmakers and has recruited his supporters since taking office β€” alienating those who supported his rivals.

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The appointment of Hunt, who ran as leader himself and then backed his main rival, former finance minister Rishi Sunak, was seen as a sign of his reach, but the move did little to appease some of his party critics.

“It’s over for her,” one such conservative lawmaker told Reuters after Friday’s events.

The next key test will come on Monday, when the British government bond market will operate for the first time without the BoE’s emergency buying support from September 28. The gilt fell late on Friday after Truce’s announcement.

Newspapers said Truss’s position was in jeopardy, but there was no agreed mechanism for how to replace him, as there was no desire in the party or the country for another leadership election.

“Even Liz Truss’s most loyal allies, looking at the matter through the most rose-tinted glasses available, must now wonder how she can survive,” the Daily Mail tabloid, which had previously given Truss strong support, said in an editorial.

“What else is the alternative?”

($1 = 0.8953 pounds)

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Michael Holden reports

Our Standards: Thomson Reuters Trust Principles.

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