Reacting to the news, the pound rebounded against the US dollar on Monday morning, returning to where it was before the “mini-budget” announcement.
But the relegation is a major blow to the reputation of the young Truss government, which has been in office for less than a month. His plans to offer tax cuts to Britain’s highest earners – at a time when millions are facing financial hardship from the cost of living crisis – have been widely condemned.
Fearing the moves would worsen inflation, investors dumped the pound and government bonds. In a highly unusual move, the Bank of England intervened last week to stem the turmoil in the financial market. Some Conservative politicians accused their government of not listening.
We understood and listened.
Abolishing the 45 per cent rate distracted us from our mission to get Britain moving.
Our current focus is building a high-growth economy that funds world-class public services, raises wages and creates opportunities at home. https://t.co/ee4ZFc7Aes
— Liz Truss (@trussliz) October 3, 2022
Eurasia Group analyst Mujtaba Rahman says the dramatic turnaround significantly weakens the government and exposes Truss’ lack of support from his own backbenchers. His critics “now smell weakness,” he said in a briefing note.
As of Sunday morning, Truss was defending his economic plans, saying he was committed to tax cuts. Kwasi Kwarteng, the new Chancellor of the Exchequer, or Minister of Finance, was expected to defend the tax cuts during his speech at the Conservative Party’s annual conference on Monday, in comments to reporters overnight.
Instead, he said in a statement Monday morning, “We understand and are listening.”
The Truss government unveiled its highly controversial economic plans in a “mini-budget” in September. Calling on the country to borrow billions to pay for tax cuts and to insulate consumers from rising energy bills 23. Only £2 billion ($2.2 billion) of the promised £45 billion ($50.3 billion) cut in the top tax rate dollars), but it was the most controversial measure.
Not only did this lead to stormy financial weather, but the Conservative Party’s popularity plummeted. In a breath-taking YouGov poll, the Conservatives trailed the opposition Labor Party by 33 points, a gap not seen since the 1990s.
The government also faced a growing backlash from within its own ranks, with several Conservative MPs coming out publicly to voice their opposition. Conservative MP Maria Caulfield, who served as health minister in the previous government, said: “I cannot support a 45p tax increase when nurses are struggling to pay their bills.” Senior Conservative Michael Gove said unfunded tax cuts were “not conservative”.
The plans still need to be passed by Parliament, and some commentators have questioned whether it will pass.
Asked if the BBC had scrapped the plans because they could not get parliamentary support, Kwarteng said: “It’s not a question of making it happen; it’s really a matter of people getting behind the event. It is not about parliamentary games or votes in the House of Commons. “It’s listening to people who have expressed very strong views on this, listening to voters, and I think I felt it was right not to continue.”
In interviews, Kwarteng has said he is not considering resigning, but analysts say he is not out of the woods yet and will be closely watched for his Conservative Party speech on Monday afternoon.
Truss will also address the party conference this week. In her first conference speech as prime minister on Wednesday morning, Truss will try to calm those angry at how her government has behaved in her first days in office.
Rahman, the analyst, said fresh revolts could be on the horizon over plans to lift the cap on bankers’ bonuses and the possibility of drastic spending cuts needed to combat dramatic revenue losses, and he promised help on energy bills.
Rahman said the chaos of the past 10 days would strengthen the voice of those calling for a change in the rules for the leadership of the Conservative Party so that lawmakers, rather than the 160,000 local members, make the final decision on who becomes leader.
Truss became Prime Minister after receiving his support Members of the Conservative Party A majority of MPs across the country supported his opponent Rishi Sunak.
