Liz Truss on Thursday was locked in discussions of a major change to the government’s “small” Budget, spurring a rally in the market amid expectations that the tax cut package has not been completed. 43 billion pounds is being unraveled.
Government insiders confirm ongoing talks on whether to relax parts of the prime minister Kwasi Kwartengthe company’s financial statements, with speculation that it could be linked to the scrapping of a planned £18 billion corporate tax cut.
The IMF on Thursday repeated its call for the government to reconsider tax cuts, with its head urging the UK to “do not prolong the pain” of policies that do not promote sustainability. in public finance.
One government insider said one option being considered would be to cut more than £20 billion in unrefundable taxes from the “Small” Budget announced by Kwarteng on September 23.
The tax cuts have caused turmoil in financial markets and prompted the Bank of England to intervene urgently to buy government bonds, to strengthen the pension fund sector.
No 10 said on Thursday there would be no further U-turn after Truss abandoned a proposal to cut the top 45p income tax rate, which was part of Kwarteng’s financial statements but was rejected by MPs. Doctor Tory criticized.
Another person close to government discussions on the “Small” Budget said: “No decisions have been made.”
Kwarteng is in Washington for IMF meetings and the fate of tax cuts and his career is in the prime minister’s hands.
Speaking at the opening of the official sessions of the IMF’s annual meetings, Kristalina Georgieva singled out the UK and the Budget as “small”, saying: “Don’t prolong the pain – make sure the actions are right. coherent and consistent.”
Speaking after meeting with Kwarteng and BoE governor Andrew Bailey, she added: “If there is evidence that a recalibration is needed, then it is right for governments to do so.”
Kwarteng himself told the BBC in an interview: “I am completely focused on the growth agenda. . . It is a very dangerous situation globally.” Asked if he would become prime minister next month, he added: “I’m not going anywhere.”
However, with the market outlook to remain uncertain after the BoE’s emergency gold-plated purchase program expires on Friday, Truss is being urged to act decisively.
Mel Stride, chairman of the House Treasury Committee, told the Financial Times: “We’ve come to a point now where we need to look very seriously at the rollback on the tax package.
“Corporate taxes could be at the heart of this. That’s a big number and the change in issue here would send a particularly strong signal that fiscal credibility is back firmly on the agenda. “
Kwarteng proposes to reverse plans to raise corporate tax from 19 per cent to 25 per cent next April, at a cost of £18 billion by 2026.
“In terms of the balance of risks and there will be political difficulties with any degree of turn, my advice is to make sure that if there is a change, it will be a change,” Stride said. great.
Sterling and UK government bonds jumped on Thursday as the BoE bought £4.7 billion in gilts as part of an emergency purchase scheme. The pound rose 2.5% against the dollar to $1.137, while the 30-year gold-plated yield fell 0.38 percentage points to 4.52%, signaling a strong upside.
The government’s 30-year borrowing costs rose above 5% on Wednesday, close to the level that prompted the BoE to enter the market after the “Small” Budget with an offer to buy up to £65 billion in long-term gilts. for two weeks. formerly.
Truss’s future as prime minister is being questioned by Tory MPs and she received a cold reception at a Conservatives meeting on Wednesday night. One person said that the mood was very “happy”.
She has only been in office for more than a month, but several Conservative MPs are privately discussing whether she should be ousted following the chaotic failure of the financial plan.
James Cleverly, the foreign secretary, told the BBC that Kwarteng really needed to “bring certainty to the market”, but added: “I think a change of leadership would be a bad idea politically and economically. .”
When asked about the government’s financial plans in an interview with Sky News, Cleverly did not mention the corporate tax cut.
He emphasized that the most important parts of the “small” Budget relate to the government’s energy assistance package and cuts to income taxes and national insurance.
Rachel Reeves, shadow chancellor, said: “Today’s mayhem shows the utter chaos this government is in.”