UK PM fights for job, Hunt issues warning

Michael Holden and Alistair Smout | October 15, 2022

Britain’s new finance minister Jeremy Hunt has said some taxes would go up and tough spending decisions were needed, signalling further reversals from Prime Minister Liz Truss as she battles to keep her job just over a month into her term.

In an attempt to appease financial markets that have been in turmoil for three weeks, Truss fired Kwasi Kwarteng as her chancellor of the exchequer on Friday and scrapped parts of their controversial economic package.

With opinion poll ratings dire for both the ruling Conservative Party and the prime minister personally, and many of her own lawmakers asking, not if, but how Truss should be removed, she has turned to Hunt to help salvage her premiership less than 40 days after taking office.

“We will have some very difficult decisions ahead,” Hunt said as he toured TV and radio studios to give a blunt assessment of the situation the country faced, saying Truss and Kwarteng had made mistakes.

“The thing that people want, the markets want, the country needs now, is stability,” Hunt said. “No chancellor can control the markets. But what I can do is show that we can pay for our tax and spending plans and that is going to need some very difficult decisions on both spending and tax.”

Truss won the leadership contest to replace Boris Johnson on a platform of big tax cuts to stimulate growth, which Kwarteng duly announced last month. But the absence of any details of how the cuts would be funded sent the markets into meltdown.

She has now ditched plans to cut tax for high earners, and said a levy on business would increase, abandoning her proposal to keep it at current levels. But it is not clear if that has gone far enough to satisfy investors.

Hunt is due to announce the government’s medium-term budget plans on October 31, in what will be a key test of its ability to show it can restore its economic policy credibility. He said further changes to Truss’s plans were possible.

“Giving certainty over public finances, how we’re going to pay for every penny that we get through the tax and spending decisions we make, those are very, very important ways that I can give certainty and help create the stability,” he said.

He cautioned spending would not rise by as much as people would like and all government departments were going to have to find more efficiencies than they were planning.

He said he would sit down with Treasury officials on Saturday before meeting Truss on Sunday to go through the plans.

Kwarteng’s September 23 fiscal statement prompted a backlash in financial markets that was so ferocious the Bank of England (BoE) had to intervene to prevent pension funds being caught up in the chaos as borrowing costs surged.

Hunt, an experienced minister and viewed by many in his party as a safe pair of hands, said he agreed with Truss’s fundamental strategy of kickstarting economic growth, adding their approach had not worked.

“There were some mistakes made in the last few weeks. That’s why I’m sitting here. It was a mistake to cut the top rate of tax at a period when we’re asking everyone to make sacrifices,” he said.

It was also a mistake, Hunt said, to “fly blind” and produce the tax plans without allowing the independent fiscal watchdog, the Office for Budget Responsibility, to check the figures.

Hunt said Truss should be judged at an election and on her performance over the next 18 months – not the last 18 days.

However, she might not get that chance. During the leadership contest, Truss won support from less than a third of Conservative lawmakers and has appointed her backers since taking office – alienating those who support her rivals.

The next key test will come on Monday, when the British government bond market functions for the first time without the emergency buying support provided by the BoE since September 28. Gilt prices plunged late on Friday after Truss’s announcement.