Economic storm tests UK’s new leader, alarms Conservatives

Sep 28, 2022, 9:25 AM | Updated: 10:06 am
In this photo provided by UK Parliament, Britain's Prime Minister Liz Truss, second left, and Chanc...

In this photo provided by UK Parliament, Britain's Prime Minister Liz Truss, second left, and Chancellor Kwasi Kwarteng, third left, are seen in the House of Commons in London, Friday, Sept. 23, 2022. Britain’s new government on Friday announced a sweeping plan of tax cuts it said would be funded by borrowing and revenues generated by anticipated growth, as part of contentious moves to combat the cost-of-living crisis and bolster a faltering economy. (Jessica Taylor/UK Parliament via AP)

(Jessica Taylor/UK Parliament via AP)

LONDON (AP) — New British Prime Minister Liz Truss came under growing pressure Wednesday from opponents — and inside her Conservative Party — to reverse announced tax cuts that are fueling a financial crisis in an already struggling economy.

The Bank of England stepped in to buy up government bonds in an attempt to stabilize the cost of borrowing after the government said last week that it would slash income tax and scrap a planned corporation tax hike, all while spending billions to cap soaring energy bills for homes and businesses.

Friday’s “mini-budget” sparked market unease about the level of U.K. government debt and sent the pound plunging to a record low against the U.S. dollar.

Neither Truss nor Treasury chief Kwasi Kwarteng has made a public statement on the turmoil. Conservative lawmakers watched with mounting alarm as the currency struggled along at near-record lows. Britain’s central bank signaled a hefty interest rate hike was in the cards for its next meeting, due in November.

“This inept madness cannot go on,” Simon Hoare, a Conservative member of Parliament, wrote on Twitter. Another Tory legislator, Robert Largan, said he had “serious reservations” about some of the government’s announcements.

“There’s a lot of concern within the parliamentary party, there’s no doubt about that,” Mel Stride, the Conservative chairman of the House of Commons Treasury committee, said.

Andrew Griffith, a junior minister in the Treasury, said the government would not reverse course but would “get on and deliver” its plan.

All the main opposition parties demanded calling Parliament back early from a two-week break so lawmakers who are not due back in the House of Commons until Oct. 11 could confront the crisis.

“Many people will now be extremely worried about their mortgage, about prices going up, and now about their pensions,” Labour Party leader Keir Starmer said. “What the government needs to do now is recall Parliament and abandon this budget before any more damage is done.”

Truss was appointed prime minister on Sept. 6 after winning a Conservative Party leadership contest to replace Boris Johnson, who stepped down in July after a three-year term tarnished by ethics scandals.

Truss, a champion of low-tax, free-market conservatism who cites 1980s political icons Margaret Thatcher and Ronald Reagan as inspirations, promised during her campaign to slash taxes and red tape in order to energize Britain’s sluggish economy.

Truss and Kwarteng vowed to challenge economic “orthodoxy” that they claim is holding Britain back. One of Kwarteng’s first acts in office was to fire the top civil servant in the Treasury, Tom Scholar.

But many Conservatives were surprised by the scale of the announced tax cuts — and by the strength of the market reaction.

The 45 billion pounds ($49 billion) in cuts, to be funded by borrowing, would come after the government just agreed to spend billions more to help shield homes and businesses from soaring energy prices driven by Russia’s invasion of Ukraine.

The growing debt raises the prospect the government will have to borrow more, at ever higher cost, and will have to cut public spending as a result.

The government says it will set out on Nov. 23 how it plans to pay for the cuts, alongside an economic forecast by the independent Office for Budget Responsibility.

“I don’t think we can wait until November,” Conservative lawmaker Roger Gale told the BBC. “We need a statement in very short order indeed to steady the nerves, steady the market and set out very clearly what the business plan is.”

Adam Tomkins, a former Conservative member of the Scottish Parliament, said “Trussonomics” was “profoundly unconservative.”

Tomkins, now a professor of law at the University of Glasgow, said the “hammering” of the pound “is the strongest possible sign that the markets don’t buy the newfound recklessness, the dogma that you can tax-cut your way to lower public spending.”

“What we are witnessing right now is not only the Conservative Party trashing its own brand: it’s the Conservative Party trashing the economy,” he wrote in the Herald newspaper.

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              British Prime Minister Liz Truss visits Berkeley Modular, in Northfleet, Kent, Britain, Friday, Sept. 23, 2022. (Dylan Martinez/Pool Photo via AP)
            
              Labour Party leader Keir Starmer and deputy leader Angela Rayner The Red Flag at the end of the Labour Party Conference at the ACC Liverpool, England, Wednesday, Sept. 28, 2022. (Stefan Rousseau/PA via AP)
            
              In this photo provided by UK Parliament, Britain's Prime Minister Liz Truss, second left, and Chancellor Kwasi Kwarteng, third left, are seen in the House of Commons in London, Friday, Sept. 23, 2022. Britain’s new government on Friday announced a sweeping plan of tax cuts it said would be funded by borrowing and revenues generated by anticipated growth, as part of contentious moves to combat the cost-of-living crisis and bolster a faltering economy. (Jessica Taylor/UK Parliament via AP)
            FILE - A view of The Bank of England in London, on Sept. 22, 2022. The Bank of England says it will launch a temporary U.K. government bond-buying program to stave off "material risk to UK financial stability" after unfunded government tax cuts spooked markets.The emergency intervention Wednesday, Sept. 28, 2022 means that the central bank will buy government bonds in an effort to stabilize the market and drive down yields. (AP Photo/Kirsty Wigglesworth, File)

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Economic storm tests UK’s new leader, alarms Conservatives