Truss returns on plans to reverse Kwarteng's corporate tax rise

By Al Mayadeen English
Source: Agencies
15 Oct 2022 10:52

UK Prime Minister Liz Truss sacrifices her Chancellor of the Exchequer Kwasi Kwarteng over the mini-budget that prompted the Bank of England to increase interest rates.

UK PM Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng (Reuters)

UK Prime Minister Liz Truss has taken a step back regarding her plans to reverse her predecessor's Corporation Tax increase an hour after her Chancellor of the Exchequer Kwasi Kwarteng was sacked.

Kwarteng had proposed a mini-budget with a promise of an energy bill bail-out for families and businesses meant to be paid for through government borrowing. However, this proposed bill incited a sharp hike in interest rates from the Bank of England as well as created a situation of nervousness around the sterling and sterling-linked assets such as British government bonds.

At a brief Downing Street press conference on Friday, Truss revealed the latest reversal of Kwasi Kwarteng's mini-budget.

It is important to note that canceling the proposed hike in the levy on business earnings from 19 to 25% was at the heart of Kwarteng's autumn budget review — and a major commitment in Truss' summer campaign to succeed Boris Johnson as Conservative Party leader and Prime Minister.

"It is clear that parts of our mini-budget went further and faster than markets were expecting," Truss argued, noting that "We need to act now to reassure the markets of our fiscal discipline."

The cuts to Corporation Tax, Income Tax, and National Insurance, when combined with the government's Energy Price Guarantee program to help consumers and companies bear skyrocketing gas and electricity costs, caused a rush on the pound sterling and government bonds known as 'gilts'.

It also garnered criticism from the White House, as the Bank of England hiked interest rates by half a percentage point, forcing mortgage providers to remove fixed-rate mortgages in anticipation of more increases.

Truss and Kwarteng had previously abandoned their plan to repeal the 45% supplementary rate of income tax, which is levied on incomes over £150,000, following a threatened rebellion by Tory backbencher MPs.

Truss proceeded to, as she has done in the past, blame the UK and collective West's economic woes on Russian President Vladimir Putin and the "appalling war in Ukraine," rather than the West's sanctions and embargoes on Russia's energy exports in favor of Kiev.

She also avoided inquiries from journalists regarding her joint responsibility for the mini-budget and the accompanying market volatility. Most significantly, Truss evaded any question regarding her credibility and whether or not she should resign.

Following a 38-day tenure as Finance Minister, which was described by some as "disastrous", Kwasi Kwarteng has been fired and replaced by Jeremy Hunt, the UK Prime Minister's office announced today.

Hunt was also a former candidate for the Conservative Party's leadership, and his appointment was announced on Friday shortly before Truss held her brief press conference.

The FTSE 100 index, which had risen in anticipation of Truss' statement, plummeted about 100 points in the next hour to roughly 6,865. The pound remained relatively steady, having already regained its pre-mini budget US-dollar exchange rate of $1.13 by Thursday evening.