Reacting to the upside news, the pound rose again on Monday morning against the US dollar, returning to where it was before the government’s tax and debt plan collapsed.
But the reversal is a major blow to the authority of the young Truss government, less than a month in office.
This greatly weakens the government and exposes Truce’s lack of support from his conservative lawmakers in parliament, said Mujtaba Rahman, an analyst at Eurasia Group. His critics “now smell weak,” he said in a brief note.
The Conservatives hoped that having a new prime minister at their annual conference this week would help restore confidence among voters beyond former prime minister Boris Johnson’s many scandals.
But the Truss government’s first major policy move — announcing a plan to boost the economy by offering big tax cuts primarily to the rich — created a strange mess.
Investors discounted the pound and government bonds, fearing that the tax cuts and associated borrowing would worsen inflation. In a very unusual move, The The Bank of England intervened To ease financial market jitters last week.
The influence of the Conservative Party also declined. In a stunning poll by UGO, the Conservatives are lagging behind 33 points Behind the opposition Labor Party, a gap has not been seen since the 1990s. A A separate studySavanta, released by ComRes on Monday, showed Labor leading the Conservatives by 25 points.
Some conservative politicians accused their party leaders of being tone-deaf amid the cost-of-living crisis.
“I cannot support scrapping the 45p tax when nurses are struggling to pay their bills” Tweeted Conservative lawmaker Maria Caulfield served as health minister in the previous government. Michael Gove, a senior Conservative, said unfunded tax cuts were “unconservative”.
Still, as of Sunday morning, Truss defended his economic plans and promised tax cuts. In remarks to reporters overnight, Finance Minister Kwasi Kwarteng, the new Chancellor of the Exchequer, was expected to defend the tax cuts in a speech to the Conservative Party conference late Monday.
Instead, on Monday morning, Kwarteng said in a statement: “We got it, we asked.”
We get it, we asked.
Abolishing the 45% rate has become a distraction from our work to move Britain forward.
Our focus now is on building a high-growth economy that funds world-class public services, raises wages and creates opportunity across the country. https://t.co/ee4ZFc7Aes
— Liz Truss (@trussliz) October 3, 2022
In his keynote speech at the party conference in Birmingham, he admitted his economic plans had caused “a bit of a stir”. But he said he was pushing ahead with plans to boost the economy and said the government would release its fiscal plans “soon”.
Only 2 billion pounds ($2.2 billion) of the 45 billion pounds ($50.3 billion) in cuts promised by the government pushed the higher tax rate, but it was a highly controversial move.
The project as a whole reflects the long-term vision of Kwarteng, an economic historian who has worked in investment banks and hedge funds. His book “Britannia UnsaintHe argues that Britain has become a “bloated state” with “high taxes” and “excessive regulations” and that only an aggressive free-market, liberal stance can propel the country into powerful economic growth.
Analysts said the Truss government hopes Kwarteng’s radical ideas will help turn the ship around for the party, which has a comfortable 75 seats in parliament but has been trailing in polls throughout the year. The idea was to go big and reap the benefits before the next general election, the last to be held by January 2025.
“Doing it in their shock and awe way forced the crystallization of opposition,” said Jonathan Ports, professor of economics and public policy at King’s College London. One of the government’s mistakes was not getting an independent assessment from the financial watchdog, the Office for Budget Responsibility (OBR).
“The flaw in that strategy is that people in the financial markets are not stupid,” he said. “So if you say to the OBR, ‘Don’t give us a forecast because we can show that our numbers don’t add up’, the markets will conclude that their numbers don’t add up, which will make things significantly worse. There will also be a bad forecast. Explaining that level of stupidity, frankly, difficult
Parliament also had to pass these plans, and some critics questioned whether they would have.
Asked by the BBC whether he was scrapping part of the plan because it lacked parliamentary support, Kwarteng said it was not “about votes in the House” but about “listening to the people, listening to the people”. Very strong opinions on this.”
In interviews, Kwarteng said he had not considered resigning — though he accepted much of the blame. On Sunday, Truss told the BBC that getting rid of top income tax was Quarteng’s idea and that he had not briefed the full cabinet on it.
Truss will also address the party conference this week. He is scheduled to speak on Wednesday morning and will try to calm those angered by how his government is operating in its early days.
Rahman, the analyst, said there could be fresh protests over plans to raise the cap on bankers’ bonuses and the real possibility of steep spending cuts needed to deal with dramatic revenue losses and promises to help power bills.
Rahman said the chaos of the past 10 days would strengthen the voices of those calling for a change in the rules for the Conservative Party leadership.
Druss won support and became Prime Minister Members of the Conservative Party Across the country, a majority of lawmakers supported his rival, Rishi Sunak.
“Lifelong social media lover. Falls down a lot. Creator. Devoted food aficionado. Explorer. Typical troublemaker.”