UK finance minister Kwarteng cuts short US visit, flies back for crunch talks over tax plans

Mr Kwasi Kwarteng said he would press ahead with a "medium-term fiscal plan" on Oct 31. PHOTO: REUTERS

LONDON - British finance minister Kwasi Kwarteng cut short his trip to Washington to return early to London on Friday, where pressure is mounting for the new government to scrap an economic policy that unleashed turmoil on financial markets.

The battered pound and government bonds rallied on Thursday as Prime Minister Liz Truss’s government began re-examining a package for unfunded tax cuts that has sent borrowing costs surging and forced the Bank of England to intervene. 

Sources familiar with the matter have told Reuters that Mr Kwarteng left a meeting of global finance ministers in Washington to join colleagues who are looking at how to balance the books for a fiscal plan announced just three weeks ago.

Ms Truss and Mr Kwarteng are now under huge pressure to reverse course as polls show their support has collapsed and colleagues have started openly discussing whether they should be replaced, just 37 days after they entered office.

With pressure mounting on financial markets, the government has already brought forward an announcement for a full fiscal plan that will set out the cost of the unfunded tax cuts and whether they will spark economic growth.

Mr Greg Hands, a junior trade minister, suggested people would now need to “wait and see” what Mr Kwarteng announces at that event, scheduled for Oct. 31.

Asked if the government was preparing to change course, he told Sky News: “I saw the prime minister yesterday. The prime minister and the chancellor are absolutely determined to deliver on the growth plan.

“I think we’re just going to have to wait and see what the chancellor says in the medium term fiscal plan on the 31st of October.” Mr Mel Stride, a backer of Truss’s leadership rival Rishi Sunak and the head of the influential parliamentary Treasury Select Committee, said.

“I think we have reached a point now where we need this very powerful, significant signalling to the market that fiscal credibility is now firmly back on the table. And I think that means doing something right now,” Mr Stride told BBC radio.

The sense of chaos at the heart of government has fuelled speculation as to whether Ms Truss and Mr Kwarteng can survive.

Ms Truss was elected by the members of the party, and not the broader electorate, as the fourth prime minister in six politically turbulent years in Britain.

While Mr Kwasi Kwarteng said “100 per cent, I’m not going anywhere”, Prime Minister Liz Truss was reportedly casting around for a replacement chancellor of the exchequer to avert threats to her own job.

Mr Paul Goodman, a former Tory MP who is editor of the influential ConservativeHome blog, told the BBC that less than 40 days into her premiership, “all sorts of names are being thrown about” to replace Ms Truss.

Pressure on the government intensified after a YouGov poll published late on Thursday by The Times newspaper said 43 per cent of Conservative voters wanted a new prime minister in Downing Street.

The front pages for the Friday's newspapers offered no relief for Ms Truss with The Times reporting of a "plot" to replace Ms Truss and Mr Kwarteng while the Daily Mail had "PM 'has 17 days to save her job'".

After climbing down on their intention to cut taxes for the wealthiest, multiple media reports suggested the embattled leaders were mulling more U-turns, including on planned changes to corporation tax.

"My total focus is on delivering on the mini-budget and making sure that we get growth back into our economy," Mr Kwarteng told UK media in Washington.


Conservative MPs have been alarmed by a slew of opinion polls that point to their party facing electoral disaster, not long after party members elected Ms Truss to succeed the scandal-plagued Boris Johnson.

Mr Goodman said potential leaders being talked about included former finance minister Rishi Sunak - who stood against Ms Truss - and "even Boris Johnson".

"One idea doing the rounds is that Penny Mordaunt and Rishi Sunak, who, after all, between them got pretty much two-thirds of the votes of MPs (in the leadership contest), come to some kind of arrangement and essentially take over."

Senior Tory Ms Mordaunt also stood against Ms Truss, and has broken Cabinet unity to warn her against cutting welfare benefits.

Ms Truss has enjoyed the shortest honeymoon period of any British political leader in living memory - so much so that The Economist this week said she had "the shelf-life of a lettuce".

On Wednesday, she appeared in Parliament for the first time since the contentious mini-budget and told MPs she was "absolutely" committed to maintain current spending.

But with currency, bond and other markets spooked by the extra borrowing earmarked to pay for the budget's tax cuts, fears have grown that she will slash government department budgets, returning to the unpopular austerity policy of a decade ago.

The respected Institute for Fiscal Studies on Tuesday said the government would have to cut spending by more than £60 billion (S$97.24 billion) just to stabilise debt levels by mid-2027.

Foreign Secretary James Cleverly, however, insisted the government should "absolutely stick" with Mr Kwarteng's mini-budget to help drive economic growth.

"I think changing the leadership would be a disastrously bad idea politically and also economically," he told BBC radio Thursday, a day after a difficult meeting between Ms Truss and members of her party. REUTERS, AFP

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