In response to the news, sterling rallied against the US dollar on Monday morning and reverted to the position before the “mini budget” was announced.
But the fall was a major blow to the authority of the young Truss government, who had been in office for less than a month. At a time when millions are facing financial distress from the cost of living crisis, plans to offer tax breaks to Britain’s highest-paid people have been widely condemned.
Investors slashed sterling and government bonds, fearing the moves would worsen inflation. In a highly unusual move, the Bank of England intervened last week to stop a financial market riot. Some Conservative politicians have accused their governments of being deaf.
We understood and we listened.
Removing the 45 percent had become a distraction from our mission to mobilize Britain.
Our focus now is to build a high-growth economy that funds world-class utilities, raises wages and creates opportunities across the country. https://t.co/ee4ZFc7Aes
— Liz Truss (@trussliz) October 3, 2022
Eurasia Group analyst Mujtaba Rahman said the dramatic U-turn had greatly weakened the government, revealing a lack of support for Truss from their own background. In a briefing note, his critics said that “it stinks of weakness now.”
As early as Sunday morning, Truss was defending his economic plans, saying he was tied to tax cuts. In comments given to reporters overnight, Kwasi Kwarteng, the Minister of Finance or the new prime minister of the Minister of Finance, was expected to defend the tax cuts in a speech to the Conservative Party’s annual conference on Monday.
“We understood and we listened,” he said instead on Monday morning.
The Truss government unveiled its highly controversial economic plans in a “mini-budget” in September. 23 called for the country to borrow billions for tax breaks and spend to insulate consumers from rising energy bills. The removal of the top tax rate represented just £2bn ($2.2bn) of the promised £45bn ($50.3bn) cut, but it was by far the most controversial measure.
This not only triggered a stormy financial mood, but the Conservative Party’s popularity plummeted. In a breathtaking poll by YouGov, the Conservatives fell 33 points behind the opposition Labor Party, by a margin not seen since the 1990s.
The government also faced growing backlash from its own ranks, and several Conservative lawmakers went public to voice their opposition. “I cannot support removing the 45p tax when nurses are struggling to pay their bills,” said Conservative MP Maria Caulfield, who served as health minister in the previous government. Michael Gove, a senior Conservative, said the unfunded tax cuts were “not Conservative”.
The plans still need to be passed by Parliament, and some commentators have questioned whether they can succeed.
When asked if the BBC shelved plans because they could not get support from Parliament, Kwarteng said: “It’s not about overcoming the plan; it’s really a matter of getting people behind the measure. It’s not about the parliamentary games or the votes in the House of Commons. This is this It’s about listening to people and voters who have very strong views on the issue, and I thought it was the right thing to not go ahead anyway.”
In interviews, Kwarteng said he was not considering resigning, but analysts said he was not out of the woods yet and his speech to the Conservative Party on Monday afternoon will be watched closely.
Truss will also speak at this week’s party conference. In his first address to the conference as prime minister on Wednesday morning, Truss will attempt to calm those who are angered by how his government has performed in his first days in office.
Analyst Rahman said there could be new revolts on the horizon, with plans to cap bankers’ perks and the possibility of severe spending cuts needed to deal with dramatic loss of income, and promised help with energy bills.
Rahman said that the chaos of the last 10 days will strengthen the voices of those demanding changes in the rules for the Conservative Party leadership, so that the final decision on who will be the leader will be made by lawmakers rather than 160,000 base members.
Truss became prime minister after gaining government support. Conservative Party members The majority of MPs supported his rival Rishi Sunak.
