Britain’s new chancellor Jeremy Hunt said on Saturday that some taxes will have to go up, signalling another abrupt policy U-turn by prime minister Liz Truss who is battling to save her leadership just over a month into her term.
In an attempt to appease financial markets that have been in turmoil for three weeks, Ms Truss fired Kwasi Kwarteng as her chancellor of the exchequer on Friday and scrapped parts of their controversial economic package.
In a hurried news conference shortly after dismissing Mr Kwarteng, Ms Truss said the corporation tax rate would increase, abandoning her plan to keep it at current levels, and government spending would rise by less than previously planned.
Big, unfunded tax cuts were a central plank of Mr Truss’s original plans, but Mr Hunt said tax increases were on the cards.
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“We will have some very difficult decisions ahead,” he told Sky News.
“The thing that people want, the markets want, the country needs now, is stability,” Mr 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.”
Mr Hunt is due to announce the government’s medium-term budget plans on October 31st, a key test of its ability to show investors that it can restore its economic policy credibility.
He said 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.
“Some taxes will not be cut as quickly as people want, and some taxes will go up. So it's going to be difficult,” he said.
Mr Kwarteng’s September 23rd fiscal statement prompted a backlash in financial markets that was so ferocious that the Bank of England had to intervene to prevent pension funds being caught up in the chaos as borrowing costs surged.
Mr Hunt said he agreed with Ms Truss’s fundamental approach of seeking to spark economic growth but the way she and Mr Kwarteng went about it had not worked.
“There were mistakes. It was a mistake when we’re going to be asking for difficult decisions across the board on tax and spending to cut the rate of tax paid by the very wealthiest,” he said.
“It was a mistake to fly blind and to do these forecasts without giving people the confidence of the Office of Budget Responsibility saying that the sums add up. The prime minister has recognised that, that’s why I’m here.”
Ms Truss was due to spend the weekend trying to shore up her flagging support within the Conservative Party, with newspapers quoting lawmakers who questioned her ability to stay in the job.
On Monday, the British government bond market faces a test when it will function for the first time without the emergency buying support provided by the BoE since September 28th. Gilt prices fell sharply late on Friday after Ms Truss’s news conference. — Reuters