Kwasi Kwarteng sacked as UK Chancellor after market chaos

Liz Truss fires close ally after huge backlash over £40bn tax cut package

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Kwasi Kwarteng has been sacked as Britain's Chancellor of the Exchequer after presiding over weeks of economic chaos during his brief term in office.

Prime Minister Liz Truss asked Mr Kwarteng to step aside as she prepared to throw his much-maligned financial plans on a bonfire on Friday.

A cut in corporation tax promised by Mr Kwarteng is expected to be reversed, breaching a key promise of Ms Truss's Conservative leadership campaign.

She bowed to political and economic pressure after Mr Kwarteng's package of more than £40 billion ($45bn) of debt-fuelled tax cuts sent markets into near-meltdown.

Jeremy Hunt, a former foreign secretary and twice a Conservative leadership candidate, was appointed on Friday as Mr Kwarteng's replacement. Another Treasury minister, Chris Philp, was moved to the Cabinet Office.

Markets rallied on Friday as news of the expected U-turn filtered through. The FTSE 100 gained and the cost of government borrowing was down, although sterling fell back against the dollar.

Mr Kwarteng defended his go-for-growth policies in a letter to Ms Truss confirming his departure, in which he acknowledged that economic circumstances had "changed rapidly" in recent weeks.

"For too long this country has been dogged by low growth rates and high taxation - that must still change if we want this country to succeed," he said.

"It is important now as you move forward to emphasise your government's commitment to fiscal discipline."

The opposition said Mr Kwarteng had been made a scapegoat for policies championed by Ms Truss. She signalled supply-side reforms announced by Mr Kwarteng, such as the scrapping of remaining EU legislation, would go ahead even as tax cuts are rolled back.

"I deeply respect the decision you have taken today. You have put the national interest first," Ms Truss wrote in her own letter responding to Mr Kwarteng.

Kwasi Kwarteng's letter of resignation. Photo: Kwasi Kwarteng / Twitter

Mr Kwarteng had flown back to London overnight after breaking off a trip to the US to face the political fallout back home.

Conservative MPs called for a rethink of what they called a “maxi-shambles” and a “politically unsurvivable” economic policy, after families were left with unaffordable mortgages on top of rising energy costs.

The Bank of England was forced to step in and buy long-term bonds to calm markets after investors took fright at Mr Kwarteng's plans.

Nick Macpherson, the former top civil servant at the Treasury, said the Bank's Friday deadline for the end of its gilt purchases had forced Ms Truss to act now.

The deadline "forced the government to adopt a more orthodox economic policy and thus restore order to the markets," he said.

Downing Street last week moved to appease critics by scrapping a tax cut for top earners, but the concession did not quell the unrest on the Tory benches.

Opposition Labour MPs said Mr Kwarteng was taking the blame for policies that Ms Truss advocated, but flopped with the public, markets and many MPs.

"Kwasi Kwarteng has been sacked by Liz Truss for introducing her policies. The prime minister is just trying to find a scapegoat for her own failures," said Labour MP Marie Rimmer.

Kwasi Kwarteng arrived at Heathrow Airport on Friday after breaking off a US trip. PA

The sacking of Mr Kwarteng, who was one of Ms Truss's earliest backers in the Tory leadership race, makes him the shortest-serving chancellor for more than half a century. His term lasted 38 days.

Ms Truss is also fighting for political survival after her disastrous first month in office left the Conservatives facing the prospect of a landslide defeat at the next election, according to current polls.

Rumours were swirling of a plot to oust Ms Truss and replace her with a unity candidate acceptable to a majority of Tory MPs, avoiding the need for another drawn-out leadership race.

The appointment of Mr Hunt, who supported Ms Truss's opponent Rishi Sunak in the Conservative leadership race, is likely to be seen as a peace offering to the moderate wing of the party.

He becomes Britain's fourth finance minister in barely three months after the departures of Mr Sunak, interim chancellor Nadhim Zahawi and now Mr Kwarteng.

Mr Philp was replaced by Edward Argar as Chief Secretary to the Treasury, the number two position in the department.

Updated: October 14, 2022, 1:22 PM