New UK Finance Minister Jeremy Hunt scrapped Prime Minister Liz Truss\u2019s economic plan and scaled back her vast energy subsidy on Monday, launching one of the biggest U-turns in British fiscal policy to stem a dramatic loss of investor confidence.
\nTasked with halting a bond market rout that has raged since the government announced huge unfunded tax cuts on September 23, Hunt has now reversed all of the policies that helped Truss to become elected as prime minister just under six weeks ago.
\nHer spokesman denied that Hunt was now running the country after his new strategy, which will also include spending cuts, sent the pound soaring against the dollar and government bond prices to start to recover from a three-week pounding.
\n\u201cI remain extremely confident about the UK\u2019s long-term economic prospects as we deliver our mission to go for growth,\u201d Hunt said in a televised clip. \u201cBut growth requires confidence and stability, and the United Kingdom will always pay its way.\u201d
\nUnder the new plan, most of Truss\u2019s 45 billion pounds of unfunded tax cuts will go and a two-year energy support scheme for households and businesses \u2014 expected to cost well over 100bn pounds \u2014 will now only run until April.
\nAfter that the government will review the best way forward, to come up with a targeted scheme that will \u201ccost the taxpayer significantly less than planned\u201d.
\nHunt said the planned tax cut changes would raise 32bn pounds ($36bn) every year. The pound soared by as much as 1.4 per cent to a session high of $1.1332 after the statement.
\nTruss said she was now charting a new course for growth, but one that would protect stability. \u201cWe have taken action to chart a new course for growth that supports and delivers for people across the United Kingdom,\u201d she said on Twitter.
\nFighting for survival
\nThe latest crisis to hit the British shores started on Sept 23, when new prime minister Truss and her-then finance minister Kwasi Kwarteng announced 45bn pounds of unfunded tax cuts to snap the economy out of years of stagnation.
\nBut the response from bond investors who would fund the plan was so violently negative that borrowing costs surged and lenders pulled mortgage offers. Eventually, the Bank of England had to step in to prevent pension funds from going under.
\nAfter reversing one tax cut, Truss fired her long-time friend Kwarteng on Friday and installed Hunt, the former health and foreign minister, to cut others.
\nAdding to the pressure, the bank stuck to its schedule of ending its support on Friday, meaning Hunt had been racing to reverse policies and find spending cuts to appease the markets and prevent borrowing costs from rising further on Monday morning.
\nDespite Monday\u2019s rally, the damage to gilts endures. The yield on the 10-year gilt is still some 46 basis points above its closing level on Sept 22, the day before the \u201cGrowth Plan\u201d shocked markets. While yields for comparable German and US bonds have increased over the same period, the hit to British debt remains especially severe.
\nTruss\u2019s spokesman was asked at a daily briefing how the prime minister could retain any credibility after she reversed course on the programme that secured her election by party members.
\nHe said she was listening to the public, her colleagues and to the advice of the markets. \u201cShe is making the necessary difficult decisions to change our approach so we can provide the economic stability and maintain that stability of leadership which is important as well,\u201d he said.
\nHer about-turn has angered those lawmakers who supported her and further encouraged those who opposed her to try to find a way of getting her out of power.
\nThe fourth British prime minister in six years, she was only formally appointed to the role on Sept 6.
\nAlready a handful of her lawmakers have said she must go. Rachel Reeves, the finance spokesperson for the opposition Labour Party, said the Conservative government was no longer capable of providing stability.
\n\u201cThe Conservatives have lost all credibility,\u201d she said.
\nWhile Hunt had been expected to reverse some of the tax cuts, the change to the energy support scheme came out of the blue.
\nTruss had announced a two-year subsidy scheme to support households and businesses through the period of surging energy prices, which would cost 60bn pounds in six months alone. Hunt said on Monday that the scheme would now run until April, but become more targeted after that.
\nThe new finance minister would still deliver a fuller medium-term fiscal plan as scheduled on October 31, alongside forecasts from the independent Office for Budget Responsibility, the Treasury said.<\/p>\n","protected":false},"excerpt":{"rendered":"
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