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UK Treasury Chief Kwasi Kwarteng Fired Amid Market Pressure
Prime Minister Liz Truss is set to hold a press conference later Friday following upheaval in markets and rebellion in her party
LONDON—U.K. Prime Minister Liz Truss fired Treasury chief Kwasi Kwarteng, in an attempt to salvage her tenure following pressure from her Conservative Party and international markets.
Mr. Kwarteng, who just three weeks ago presented the largest tax cuts since the 1970s, was replaced after markets balked at the scale of the borrowing required to fund the growth package. He became the second-shortest-serving chancellor in recent British history.
“You have asked me to stand aside as your chancellor. I have accepted,” he wrote in a resignation letter.
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Ms. Truss is expected to reverse key parts of her planned tax cuts later Friday, a senior official said, as her economic plan to jolt the U.K. into growth unravels after a backlash from financial markets and her party. A reversal would cap a frenetic few weeks in British politics in which Ms. Truss has tried to salvage her attempt to launch a British version of Reaganomics. Since the plan was announced three weeks ago, the pound has hit a record low against the dollar, the Bank of England has stepped in to steady the government-bond market and the Conservative Party’s support has tanked to record lows in opinion polls.
Yields on 10-year U.K. government debt fell 0.25 percentage point Friday, adding to gains on Thursday when reports began that the government was considering backtracking on some or most of its 43 billion pounds, equivalent to about $49 billion, in planned tax cuts.
Ms. Truss has been trying to tough it out. This week, she repeatedly told lawmakers both publicly and privately that she was going to see the plan through. But by Thursday, government officials were drawing up alternatives. The so-called “mini-budget” drew a rebuke from finance ministers at the International Monetary Fund meeting in Washington who said it made little sense for a government to stimulate the economy while the nation’s central bank rolled out measures to tame inflation.
Conservative lawmakers, meanwhile, balked at the public-spending reductions needed to fund the tax cuts, which disproportionately benefited the wealthy, and the prospect of interest-rate rises that were sending mortgage rates up sharply.
On Thursday, the pound jumped against the dollar as traders bet Ms. Truss would have to reverse course.
In recent days, Mr. Kwarteng tried to calm the storm. On Monday, the chancellor brought forward by several weeks the date of his plan to balance the government’s finances to Oct. 31 and appointed an experienced civil servant to beef up the Treasury.
To appease rebel lawmakers, Mr. Kwarteng earlier this month announced the shelving of a plan to cut the top 45% rate of tax, a move that is estimated to save the government £2 billion a year. Some £60 billion in government cuts were needed to fund the package, according to the Institute for Fiscal Studies, a think tank. A corporate-tax rise, worth some £18.8 billion a year to the exchequer, would go some way to plugging that hole.
Markets priced in much of an expected U-turn on Thursday. But the political damage may prove harder to reverse, analysts say. A YouGov poll put the opposition Labour Party with 51% of votes, compared with 23% for the Conservative Party.
