Despite turmoil, UK Treasury chief says economic plan stays

In this handout photo provided by UK Parliament, Britain's Prime Minister Liz Truss speaks during Prime Minister's Questions in the House of Commons in London, Wednesday, Oct. 12, 2022. (Jessica Taylor/UK Parliament via AP) (Jessica Taylor, UK Parliament)

LONDON – Britain’s Treasury chief on Thursday rejected suggestions that the Conservative government would reverse course on economic plans that have roiled financial markets even after Prime Minister Liz Truss faced widespread criticism from her own lawmakers during a closed-door meeting.

Treasury chief Kwasi Kwarteng flatly ruled out a U-turn on the government’s economic growth plan, despite investor concerns that 43 billion pounds ($48 billion) of unfunded tax cuts will push public borrowing in Britain to unsustainable levels and fuel inflation. Kwarteng announced the plans three weeks ago when he delivered a “mini-budget” to the House of Commons.

“Our position hasn’t changed,” Kwarteng told the BBC in Washington, where he is attending the International Monetary Fund’s annual meeting. “What I’m totally focused on is delivering on the mini-budget."

Truss spokesman Max Blain said Thursday that the government was committed to the economic plan it set out last month, but would not comment on any specific measures in it. He said he did not want to pre-empt Kwarteng’s Oct. 31 statement.

However, Truss is considering whether to drop other elements of the tax-cutting plan. The Financial Times reported talks between her Downing Street office and the Treasury were underway, with speculation it would include abandoning the commitment to axe a planned increase in corporate tax. So far, the government has only reversed course on 2 billion pounds ($2.27 billion) in cuts.

The comments came after Conservative Party lawmakers blasted Truss on Wednesday evening for pursuing a strategy they said benefits the wealthy at the expense of the working class voters who handed the party a landslide victory in 2019. Truss has “trashed the last 10 years of workers’ Conservatism,” British news organizations quoted Robert Halfon, chairman of the House of Commons Education Committee, as saying.

The government argues that the proposed tax cuts will stimulate economic growth, which will in turn generate increased tax revenues to pay for public services.

But investors are concerned because Truss' Conservative government hasn’t provided any independent analysis on how the plan will affect borrowing and debt levels.

That sent the pound plunging to a record low against the dollar on Sept. 26, although it has since recovered. The Bank of England has stepped in to stabilize the bond market after sharp increases in bond yields threatened some pension funds. Rising interest rates are also squeezing borrowers, making it more difficult for people to buy home and refinance mortgages.

Under pressure to stabilize financial markets, Kwarteng said earlier this week that he would release further details on the government’s economic plan and its impact on public finances by the end of this month. That’s three weeks earlier than planned.

With talks on altering the package rumored to be under way back home, Kwarteng insisted his position was safe. Asked if he and Truss would still be in office in a month, he said: “Absolutely 100%. I am not going anywhere.”

Earlier, Foreign Secretary James Cleverly also rejected suggestions that Truss would step down.

“I think that changing the leadership would be a disastrously bad idea, not just politically but also economically,” Cleverly told the BBC. “And we are absolutely going to stay focused on growing the economy.”