By William James and William Schomberg
LONDON (Reuters) – New finance minister Jeremy Hunt has vowed to regain Britain’s economic credibility by accounting for every penny of the government’s tax and spending plans, while insisting that his boss, the Prime Minister Liz Truss, remains in charge.
Truss appointed Hunt on Friday in a bid to salvage his leadership as confidence in his ability to lead the country waned both within his own Conservative Party and in international financial markets.
Investors have sold off UK government bonds since Sept. 23, when Hunt’s predecessor, Kwasi Kwarteng, announced a series of unfunded tax cuts without releasing a set of independent economic forecasts.
The ripple effect forced the Bank of England into emergency action to protect pension funds and drove up mortgage costs, adding to the strain on Britons’ finances.
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“No government can control the markets. No chancellor should seek to do that,” Hunt told BBC television in an interview broadcast on Sunday.
“There’s one thing we can do and that’s what I’m going to do, which is show the markets, the world, in fact the people watching at home, that we can properly account for every penny of our tax and spending plans.”
Britain’s economy is in danger of slipping into recession just as the Bank of England is raising interest rates to control soaring inflation. Bank of England Governor Andrew Bailey said on Saturday he believed a sharp rise in interest rates would be needed in early November.
Truss – who won the Conservative Party leadership just a month ago after promising to cut taxes – sacked Kwarteng on Friday and scrapped key parts of the program they had agreed together.
The chaos fueled discontent within the ruling party, which before Friday had already splintered and was falling far behind the opposition Labor Party in opinion polls. The Sunday papers were full of stories of Truss replacement projects.
Even US President Joe Biden criticized Truss’ original economic plan as a mistake.
“I think the idea of cutting taxes for the super rich at a time when – anyway, I just think – I didn’t agree with the policy, but it’s up to Britain to carry this judgment, not mine,” he said.
After effectively dismantling Truss’ bet that tax cuts would spur growth and fund government spending, Hunt said he will go further, including imposing tighter spending controls and some tax hikes.
“I will ask every government department to find new efficiency savings,” he said, adding that while he wanted to keep the other tax cuts promised by the government, he did not exclude anything in its desire to balance the accounts.
He said he would lay out the details in a financial statement already scheduled for Oct. 31.
The Sunday Times said the Office for Budget Responsibility’s initial forecast showed a shortfall of 72 billion pounds ($80.42 billion) in current plans. The newspaper also said Hunt would delay a planned reduction in the basic income tax rate.
The Treasury declined to comment on the report.
Asked if he thought the financial markets would have confidence in his plans, Hunt told the BBC: “Well, I think, you know, for people who trade in the markets, stocks talk more louder than words.”
A first test will come on Monday morning when trading in troubled UK government bonds resumes without support from the Bank of England’s emergency bond-buying program, which expired on Friday.
“Basically we’ve gone from a loan proposal not too different from the US or Germany to a loan proposal that’s more like Italy and Greece,” the former told Sky. Bank of England Deputy Governor Charlie Bean.
As Hunt seeks to fend off pressure from the financial markets, Truss faces a mutiny within his party.
Reports citing unnamed sources filled the newspapers on Sunday, with Defense Secretary Ben Wallace touted as the Sunday Mirror’s preferred senior lawmaker replacement, and Rishi Sunak – whom Truss defeated in a race last month at the helm – named as another possible successor by the Sun on Sunday.
Truss wrote an article in The Sun admitting that his plans had gone “further and faster than markets expected”.
“I listened, I understand,” she wrote. “We cannot pave the way to a low-tax, high-growth economy without maintaining market confidence in our commitment to sound currency.”
Conservative lawmaker Robert Halfon said his initial plans had made the government look like “libertarian jihadists” who had treated the whole country like laboratory mice on which to conduct ultra-free market experiments.
He told Sky that while he’s not asking for his resignation now, things have to get better.
Hunt was asked whether, given the sweeping change in policy he had overseen, he was now effectively running the government.
“The prime minister is in charge,” he said. “She changed the way we’re going to get there. She didn’t change the destination, which is to grow the country.”
(Reporting by William James and William SchombergEditing by Louise Heavens, Alexandra Hudson)
Copyright 2022 Thomson Reuters.