While the public may be busy reading the NFL London Game Predictions, in one of the largest U-turns in British fiscal policy, new UK Finance Minister Jeremy Hunt rejected Prime Minister Liz Truss’ economic strategy. He reduced her substantial energy subsidy on Monday to halt a sharp decline in investor-market confidence.
Hunt has already undone every policy that Truss used to win the seat as prime minister less than six weeks ago. Hunt is tasked with stopping a bond market crash that has been raging since the government announced sizable unfunded tax cuts on September 23.
After Hunt’s new approach, which also included budget cutbacks, caused the pound to rise against the dollar and government bond prices to start recovering from a three-week beating, her spokesperson stated that Hunt was now in charge of the nation’s financial services.
The majority of Truss’s unfunded tax cuts worth 45 billion pounds would be eliminated under the revised proposal, and a two-year energy assistance program for individuals and companies will now only last until April. Following that, the government will consider the best course of action and develop a focused strategy that “costs the public much less than expected.”
Hunt said that the proposed tax reduction measures would generate 32 billion pounds ($36 billion) annually. Following the announcement, the pound jumped by as much as 1.4% to a session high of $1.1332. Truss said that she was now laying out a new route for expansion while guarding stability.
On September 23, the new prime minister Truss and her finance minister at the time, Kwasi Kwarteng, promised 45 billion pounds in unfunded tax cuts to jump-start the economy after years of stagnation. The idea would have been funded by bond investors, but their reaction was so vehemently adverse that borrowing prices shot up, and mortgage lenders withdrew their offers. The Bank of England has to act at some point to stop pension funds from failing.
Truss sacked her longtime accomplice Kwarteng on Friday after rolling back one tax reduction and replaced him with the former health and foreign minister Hunt to implement other tax cuts. Hunt had to work quickly to change policy and identify budget cuts in order to calm the markets and stop borrowing prices from increasing on Monday morning. To make matters worse, the bank adhered to its plan of removing its assistance on Friday.
Despite Monday’s rise, gilts continue to be damaged. The 10-year gilt yield is still around 46 basis points higher than it was on September 22, the day before the “Growth Plan” sent markets into a tailspin. While rates on similar US and German notes have gone up throughout the same time period, the impact on British debt has remained particularly bad.
At a daily briefing, Truss’s spokesperson was questioned about how the prime minister could maintain any credibility after she changed her mind on the policy that helped her win party members’ support for her candidacy. He said that she was taking input from the markets, her coworkers, and the general public. He stated that she is making the tough but essential choices to adjust our strategy so we can keep that stability of leadership which is crucial, as well as offer economic stability.
Her turnaround has infuriated the politicians who had backed her and emboldened others who disagree with her to look for a method to remove her from office. She was only officially appointed to the position on September 6. She is the fourth British prime minister in six years.
A few of her MPs have already said that she must go. The opposition Labour Party’s finance spokeswoman, Rachel Reeves, said that the Conservative administration was no longer able to provide stability. Hunt had been predicted to roll back some tax cuts, but the energy assistance program adjustment was unexpected.
To help people and companies through the era of skyrocketing energy costs, which would cost 60 billion pounds in only six months, Truss established a two-year subsidy program. The plan, according to Hunt’s announcement on Monday, will now go until April before becoming more focused and selective. According to the Treasury, the finance minister will provide a more comprehensive medium-term fiscal plan on October 31, along with projections from the independent Office for Budget Responsibility.
