Liz Truss, the UK prime minister, has sacked Chancellor Kwasi Kwarteng as she prepares to carry out a dramatic U-turn on his “mini” budget.
“You have asked me to stand aside as your chancellor. I have accepted,” Kwarteng wrote in a letter to Truss that he tweeted Friday afternoon.
“Now it is important that we move forward to emphasize your government’s commitment to fiscal discipline. . . Your success is the country’s success and I wish you success.”
Truss will hold a press conference on Friday afternoon where she is expected to announce the turnaround in Kwarteng’s £43bn package of unfunded tax cuts.
The former chancellor returned to London from IMF talks in Washington on Friday morning and headed straight for Downing Street.
Among the measures expected to be scrapped is an £18 billion cut in corporation tax – Kwarteng had planned to scrap a proposed rise next April from 19 per cent to 25 per cent.
Conservative MPs had predicted the dismissal of Kwarteng, whose fiscal statement on September 23 quickly turned into an economic and political disaster.
Sajid Javid, who briefly served as chancellor in Boris Johnson’s government, is seen by some cabinet ministers as the only credible contender to replace Kwarteng.
“She is the only one who is close enough to her agenda that she can have some credibility with the markets,” said one minister.
The tax cuts announced in the “mini” budget were very Truss policies and featured prominently in her Tory leadership campaign. A change will represent a political disaster for him.
Government bonds – at the center of the turmoil that followed Kwarteng’s fiscal statement last month – have already marked a recovery from the week’s lows as markets increasingly anticipate a new round of tax cuts.
Gilts extended a rally from Thursday into Friday morning, with the yield on the 30-year bond falling 0.24 percentage points to 4.31 percent as its price rose sharply. The pound fell 0.4 percent to $1.124 against the dollar, trimming an overnight rally that had taken it as high as $1.137.
However, an emergency Bank of England bond-buying program to support gilt-exposed pension funds expires on Friday, with investors worried that if the government does not back down on its tax proposals, more turmoil could follow.
The market chaos has led many Tory MPs to openly criticize Truss’s leadership and speculate whether her prime minister will survive the coming months.
“The problem is that she only has about 25 per cent of the parliamentary party supporting her – if that,” one veteran Tory told the Financial Times. “She has a lot of disgruntled MPs to manage.”
The government’s record low in the polls – in one poll the Tories have fallen to 19 per cent, with Labor enjoying a 34-point lead – has increased pressure from Tory MPs for Truss to oppose her economic plans.
Mel Stride, chairman of the Treasury select committee, argued on Friday that if the government failed to change course, it could be punished again by the markets.
“If it doesn’t, then the markets may have a negative reaction to that,” he told the BBC. “So my advice to the chancellor would be firmly, ‘Do it, do it now, make sure it’s something important, not just nipping at the edges, but something that’s going to be strong and bold and compelling, and do it as long as possible. as soon as possible. .'”
Conservative peer Lord Ed Vaizey added that a U-turn was now “inevitable”.
“What is being discussed now is that there will be some sort of compromise that could still be presented as radical economics,” he said, speaking on Sky News.
As the government tried to guard its public message, trade minister Greg Hands said on Friday that Truss and Kwarteng were “absolutely determined to stick to the growth plan”. He told LBC radio: “There are absolutely no plans to change anything, apart from the fact that there will be a medium-term fiscal plan.”
Kwarteng has so far said he will announce that plan – when he is due to explain how he intends to reduce the debt – on October 31 along with forecasts from the Office for Budget Responsibility. But pressure has steadily increased on the government to act more quickly.
A former cabinet minister argued that Truss’ recent mistakes were down to a lack of experience in her core team. “It feels like there aren’t enough adults in the room,” they said.
Some senior backbenchers have floated the possibility of replacing Truss with a joint ticket of former chancellor Rishi Sunak and Penny Mordaunt, the leader of the Commons.
Former culture secretary Nadine Dorries hit back at the suggestion on Twitter, writing: “It is a conspiracy not to remove a prime minister, but to subvert democracy.”
