Liz Truss insists her 'mission remains' as she U-turns on tax plan

Kwasi Kwarteng sacked as chancellor after weeks of market chaos

Prime Minister Liz Truss gives a press conference at 10 Downing Street on Friday. AFP
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Britain's Prime Minister Liz Truss said on Friday that she would fight on to deliver her pro-growth agenda, despite sacking her chancellor and scrapping a promised tax cut on a dramatic day in Westminster.

Ms Truss said her “mission remains” even as she jettisoned a key pledge by announcing that corporation tax would rise next year.

She sacked her chancellor and close ally Kwasi Kwarteng on Friday after his huge package of tax cuts caused mayhem on markets and angered MPs and the public.

Markets were not immediately appeased, with government borrowing costs moving back up after falling earlier on Friday. Sterling was down against the dollar after Ms Truss spoke.

“It is clear that parts of our mini-budget went further and faster than markets were expecting. So the way we are delivering our mission right now has to change,” Ms Truss told a press conference.

“This is difficult. But we will get through this storm and we will deliver the strong and sustained growth that can transform the prosperity of our country for generations to come.”

Former foreign secretary Jeremy Hunt was appointed as the new chancellor, as opposition MPs accused Ms Truss of making Mr Kwarteng a scapegoat for policies she championed.

Liz Truss - in pictures

Questioned on her credibility and whether she could continue in office, she said: “The mission remains the same. We do need to raise our country’s economic growth levels. We do need to deliver for people across the country.”

Ms Truss's U-turn means corporation tax will rise from 19 to 25 per cent next year as envisaged by Boris Johnson's government. She had campaigned to stop the increase during the Conservative leadership race.

Mr Kwarteng was an early backer of Ms Truss during the contest to replace Boris Johnson.

Seeking to reassure investors who took fright at Mr Kwarteng's unfunded plans, she said the new tax would raise an extra £18 billion ($20.2bn) and that government spending would be kept under control.

"Our public sector will become more efficient to deliver world-class services for the British people. And spending will grow less rapidly than previously planned," she said.

One of Mr Hunt's first tasks will be to deliver a medium-term fiscal plan on October 31 setting out how the government plans to reduce debt as a share of national income.

But rumours swirled of a plot to oust Ms Truss from within her own ranks, as another former chancellor, Philip Hammond, said the Tories were squandering their reputation for economic sobriety.

"I'm afraid we have thrown away years and years of painstaking work to build and maintain a reputation as a party of fiscal discipline and competence in government," Mr Hammond said.

Mr Kwarteng was called back from a trip to the US to learn his fate on Friday, before leaving 11 Downing Street after only 38 days in office.

A former top Treasury official, Nick Macpherson, said the government's hand was forced by the Bank of England ending a multibillion-pound intervention to calm markets.

The end of the Bank's bond purchases "forced the government to adopt a more orthodox economic policy and thus restore order to the markets," he said.

Thomas McGarrity, from investment bank RBC, said Friday's changes did not eliminate market concerns about the health of Britain's economy.

He said: "A sizeable U-turn on the unfunded tax plans should be supportive to UK domestic stocks given their sharp underperformance over the past month. It does not, however, change our caution towards UK domestic stocks and maintain a strong preference for more internationally oriented companies given the challenges the UK economy still faces."

Mr Kwarteng confirmed in a letter that Ms Truss had asked him to stand aside as chancellor, but defended the government's pro-growth policies.

"Following the status quo was simply not an option. For too long this country has been dogged by low growth rates and high taxation," he said.

Ms Truss said her close ally Mr Kwarteng had "put the national interest first" by resigning.

Updated: October 14, 2022, 2:53 PM