The UK currently functions with an honorary Prime Minister, Liz Truss, and a Chancellor of the Exchequer, Jeremy Hunt, who actually acts like a sitting Prime Minister. Truss has been unable this Monday to face the House of Commons to debate with the opposition. On Monday morning, the new British head of the Treasury has shown, as soon as the week starts, that he is in control of the situation. He has completely scrapped the remnants of the controversial tax cut announced by his predecessor, Kwasi Kwarteng. And even he has drastically reduced the only popular measure that the current government still maintained: direct aid to families and companies to pay the gas and electricity bill.
The markets play with wicked hunger. They discount in advance the content of any economic announcement, and force governments to go further to calm nerves. Hunt had announced at dawn that he would appear at mid-morning this Monday to advance new measures, and definitively liquidate the fiscal measures of the ill-fated prime minister. It wasn’t going to be enough. A stronger announcement was needed. Hunt has confirmed that the Government will also reverse the historic energy cost relief plan, which was announced at the beginning of September and meant —because of its universality, since it affected all consumers equally; and for its duration, two years—a hole in the public accounts of more than 170,000 million euros.
“The prime minister and I agree that it would not be responsible to expose public accounts to the unlimited volatility of gas prices in international markets. Today I am announcing that there will be a review of energy aid measures from next April. The objective is to design a new approach that involves less money from the taxpayer, while providing support to those who need it most, ”Hunt said in a television appearance before the nation. In other words, as economic institutions such as the International Monetary Fund suggested, the Truss government finally assumes that any aid to citizens must be selective and measured, not an open bar for all income levels. Especially at a time when inflation is skyrocketing and interest rates are rising rapidly.
Total elimination of the tax reduction
The announcement of the end of the generous energy aid —which will only relieve the bills of homes and companies in a general way during this winter— was the bomb demanded by the markets, which have reacted positively during the minutes following the announcement. Long-term bond yields were beginning to decline—yields always behave inversely to the value of debt—and sterling was strengthening.
But it has not been the only announcement. Hunt confirmed the anticipated decision by Truss on Friday that he would maintain the increase scheduled for next April from 19% to 25% of corporate tax, and added new snips to the already practically annihilated tax relief plan presented on September 23 by the dismissed Minister Kwarteng. Nor would the basic personal income tax rate be reduced from 20% to 19%, nor would there be an elimination of VAT for foreigners who bought products in the United Kingdom. In the same way, tax aid for the self-employed will not continue, nor will the reduction of the tax on alcohol. Practically, everything that had not started the parliamentary process for approval has been eliminated. Only the decision remains to reverse the rise in Social Security contributions, which the Boris Johnson government approved to finance a battered National Health Service after the pandemic. The measure, however, added unnecessary stress to workers and businesses on the brink of an economic recession.
With all the accumulated announcements, Hunt has assured, the Government will save almost 37,000 million euros that, otherwise, would have increased the public debt. This is without taking into account the perspective of savings that drastically reduces direct aid to households and companies due to the energy crisis.
“There will be more difficult decisions in the coming days,” Hunt warned. “Both in terms of taxes and spending cuts, with the aim of reducing the ratio of debt to GDP in the medium term. All ministries will have to double their efforts to save, and some areas of public spending will suffer cuts . Economic growth requires trust and stability, and that is something the UK will always pursue,” she has said.
The British people rightly want stability, which is why we are addressing the serious challenges we face in worsening economic conditions.
We have taken action to chart a new course for growth that supports and delivers for people across the United Kingdom.
— Liz Truss October 17, 2022
“British citizens rightly aspire to stability, and so we are responding to the serious challenges of worsening economic conditions. We have adopted measures to chart a new course of growth that supports all the inhabitants of the United Kingdom, ”the prime minister wrote on Twitter as soon as Hunt’s appearance ended, in a desperate attempt to present the humiliating turn of his policies as his own decision.
But with his announcement, the Chancellor of the Exchequer has consummated a spectacular amendment to the entirety of his boss, Truss, whose days in Downing Street are numbered. Most Conservative MPs assume she won’t make it to Christmas. Everything depends on the ability of the rebels of the parliamentary group to conspire around a replacement figure that they have not yet been able to agree on. The terror of the prime minister is such that she has decided to avoid the urgent debate promoted this Monday in Parliament by the Labor opposition.
Penny Mordaunt, today leader of the House of Commons (equivalent to the Spanish Secretary of Relations with the Courts, although with ministerial rank), but also the favorite of many conservative deputies —far ahead of Truss herself— intervened on his behalf. the primary passes. Amid the endless string of surprises and plot twists that the stormy tenure of the still-tenant of Downing Street has brought, he can even take credit for Labor leader Keir Starmer, famed for his dull, flat tone, pulling the laughter from the deputies of his caucus (and of many from the opposite one): “I thank Mrs. Mordaunt for answering a question that was addressed to the prime minister. It is clear that, under the Conservatives, everyone can be prime minister for at least 15 minutes.”
Only when Hunt has appeared in the House of Commons, to explain in parliamentary headquarters what he had already explained to the markets hours before, has Truss shown his face. With a strange calm and constant half-smile, he listened—without gesturing, nodding, or looking straight ahead—to the debate, and the opposition’s attacks. “He is dedicating himself to reversing everything he campaigned for. It’s not that it’s impossible, it’s that it’s absurd. Not only does the prime minister no longer show her face. It is clear that she no longer retains any power, ”said Labor spokeswoman for the Economy, Rachel Reeves.
Hunt had not only overthrown all the decisions made in these weeks, but even contradicted the convictions previously expressed by Truss. Labor had called for new windfall profit taxes on energy companies, and the prime minister had balked at what she saw as a disincentive to investment. “I’m not against, in principle, taxing profits that are really extraordinary,” Hunt said. “Nothing is ruled out.”
The prime minister was escaping from Parliament in the middle of the discussion. She had to meet with the first group of conservative deputies of all those she intends to see during the week, in a last attempt to convince her people that she is qualified to continue leading the Government.
Truss has ended the day with an interview on the BBC, and assured that she would be the conservative candidate in the next elections. After asking for forgiveness for all his mistakes for the first time, and assuring that “he had corrected them”, he has tried to justify his 180-degree turn in tax policy, because “it would have been irresponsible not to act in defense of the national interest, as we have finally done. “
The head of the Government managed to prevail in the first conservative elections last summer with a single and repeated promise: lower taxes. The turbulence of recent weeks in the markets, the collapse of the United Kingdom’s international reputation and the irritation unleashed among the Tories by the disastrous management of the new Government have annihilated Truss’s chances of survival and her brief neoliberal adventure.