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UK’s Truss defends economic plan that sent pound tumbling

British Prime Minister Liz Truss is under fire from over tax cuts that are fueling a financial crisis in an already struggling economy.

September 29, 2022
By JILL LAWLESS
29 September 2022

British Prime Minister Liz Truss has defended her economic plan that has roiled financial markets, saying she is willing to take “controversial” steps to reignite growth and will not reverse course despite the turmoil.

“This is the right plan that we’ve set out,” she said in a series of interviews with local BBC radio stations on Thursday.

Liz Truss is expected to face public questioning about her economic plans for the first time following the fallout from the mini budget. (Toby Melville/PA)

Asked if she would reverse the mini budget that shocked markets with the scale of its tax cuts and government borrowing, Truss said: “I don’t accept the premise of the question.”

“We are facing difficult economic times. I don’t deny this. This is a global problem. But what is absolutely right is the UK government has stepped in and acted at this difficult time.”

Finance minister Kwasi Kwarteng sparked turmoil in financial markets last week when he delivered a plan to cut taxes without detailing the impact on the public finances or how the government would reform the economy to spur growth.

The pound sank and British government bond yields soared, forcing the Bank of England to revive its bond-buying program in an emergency move on Wednesday to shore up pension funds.

Truss said the government had to take urgent and decisive action to protect households and businesses from surging energy bills.

“Of course, that means taking controversial and difficult decisions. But I’m prepared to do that as prime minister because what’s important to me is that we get our economy moving.”

From earlier

New British Prime Minister Liz Truss is coming under growing pressure from opponents – and inside her Conservative Party – to reverse announced tax cuts that are fueling a financial crisis in an already struggling economy.

Last Friday’s “mini-budget” sparked market unease about the level of UK government debt and sent the pound plunging to a record low against the US dollar.

Neither Truss nor Treasury chief Kwasi Kwarteng has made a public statement on the turmoil. Conservative lawmakers watched with mounting alarm as the currency struggled along at near-record lows. Britain’s central bank signaled a hefty interest rate hike was in the cards for its next meeting, due in November.

Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng (Dylan Martinez/PA)

“This inept madness cannot go on,” Simon Hoare, a Conservative member of Parliament, wrote on Twitter. Another Tory legislator, Robert Largan, said he had “serious reservations” about some of the government’s announcements.

“There’s a lot of concern within the parliamentary party, there’s no doubt about that,” Mel Stride, the Conservative chairman of the House of Commons Treasury committee, said.

All the main opposition parties demanded calling Parliament back early from a two-week break so lawmakers who are not due back in the House of Commons until October 11 could confront the crisis.

“Many people will now be extremely worried about their mortgage, about prices going up, and now about their pensions,” Labour Party leader Keir Starmer said. “What the government needs to do now is recall Parliament and abandon this budget before any more damage is done.”

Truss was appointed prime minister on September 6 after winning a Conservative Party leadership contest to replace Boris Johnson, who stepped down in July after a three-year term tarnished by ethics scandals.

Truss, a champion of low-tax, free-market conservatism who cites 1980s political icons Margaret Thatcher and Ronald Reagan as inspirations, promised during her campaign to slash taxes and red tape in order to energize Britain’s sluggish economy.

Truss and Kwarteng vowed to challenge economic “orthodoxy” that they claim is holding Britain back. One of Kwarteng’s first acts in office was to fire the top civil servant in the Treasury, Tom Scholar.

But many Conservatives were surprised by the scale of the announced tax cuts – and by the strength of the market reaction.

The 45 billion pounds in cuts, to be funded by borrowing, would come after the government just agreed to spend billions more to help shield homes and businesses from soaring energy prices driven by Russia’s invasion of Ukraine.

The growing debt raises the prospect the government will have to borrow more, at ever higher cost, and will have to cut public spending as a result.

Adam Tomkins, a former Conservative member of the Scottish Parliament, said “Trussonomics” was “profoundly unconservative.”

Tomkins, now a professor of law at the University of Glasgow, said the “hammering” of the pound “is the strongest possible sign that the markets don’t buy the newfound recklessness, the dogma that you can tax-cut your way to lower public spending.”

“What we are witnessing right now is not only the Conservative Party trashing its own brand: it’s the Conservative Party trashing the economy,” he wrote in the Herald newspaper.

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