Liz Truss took over as British Prime Minister in September. Since then, the government has not calmed down. The most important questions and answers on the government crisis.
The latest developments:
- Liz Truss announced the dismissal at a press conference on Friday (10/14). of their finance minister Kwasi Kwarteng and his successor confirmed by Jeremy Hunt. At the same time she gave announced an about-face in their financial policy. She announced that she would not go ahead with the corporate tax hike announced by her predecessor, Boris Johnson. Truss admitted that parts of her government’s mini-budget went “further and faster” than expected. The government must now convince the market of its fiscal discipline. When journalists present repeatedly asked why Kwarteng had to go but why she was not resigning from her post, Truss answered evasively and explained that she wanted to stick to her course despite the necessary corrections.
- Liz Truss names Jeremy Hunt as Treasury Secretary. This is what Downing Street said on Friday (14/10) via twitter announced. Edward Argar will serve as his secretary. Hunt most recently served as Chair of the Health Committee in the British Parliament. In the summer he had run for the post at the head of the Conservative Party, but had failed after a few ballots. During the pandemic, the 55-year-old has been one of the government’s harshest critics.
- Liz Truss fires her finance minister, Kwasi Kwarteng. The finance minister himself confirmed the corresponding rumors on Friday (October 14) on his Twitter channel. As a result, Kwarteng is leaving office after only five weeks. Kwasi Kwarteng – a portrait
— Kwasi Kwarteng (@KwasiKwarteng) October 14, 2022
background
Why is Liz Truss criticized within her own party?
In the internal party competition for the presidency, Liz Truss had promised tax cuts and free-market reforms. She categorically rejected the distribution of “alms” because of the high energy prices. However, the promise did not last long. After three days in office, she announced a massive subsidy and debt package. The cost of the aid package, designed to help households and businesses amid the energy crisis, is £60bn.
At the end of September, Finance Minister Kwasi Kwarteng announced tax cuts that should have benefited the wealthiest in society in particular. The new government wanted to boost economic growth. After the announcement of the government debt-financed plans, the pound rate plummeted. The British central bank was forced to step in and buy long-dated government bonds – with no upper limit. The decision also caused resentment within their own party, the Tories. Just under a week later, Truss and Kwarteng came back with the project, at least partially.
British Prime Minister Liz Truss has fired her finance minister, Kwasi Kwarteng.
The independent Institute for Fiscal Studies (IFS) has warned that the government will need to cut spending by around £60bn if debt is to stabilize by 2026. In the House of Commons, however, Truss insisted that she would not restrict public spending.
The burden on the national budget from the announced plans caused nervousness in the party and in the markets. The prime minister’s actions have done lasting damage to her fiscal policy credibility.
What role does the central bank play?
Since the “mini-budget” was presented, the Bank of England has intervened several times in the market for British government bonds (gilts). However, central bank governor Andrew Bailey announced on Tuesday evening (October 11) that market interventions would end at the end of the week, prompting yields on British government bonds to rise sharply again on Wednesday. The central bank does not want to be suspected of protecting the government from the consequences of its precarious fiscal policy.
At the International Monetary Fund (IMF) meeting in Washington on Thursday (October 13), the head of the central bank, Bailey, was asked whether stopping the tax cut package would put an end to the weeks of turbulence on the British markets. He didn’t comment, but smiled broadly. Following Kwarteng’s dismissal on Friday, Bailey’s reaction appears in a new light.
How does Liz Truss react to the criticism?
Liz Truss is apparently unsettled by the sharp reaction on the financial markets, the pressure from the parliamentary group and the poor poll numbers. Truss is currently reluctant to make decisions on a number of issues, or is rejecting other ministers’ plans altogether. Planned reforms in agriculture, childcare and possible restrictions on strikes are not yet mature enough to be presented before October 31st.
After the criticism did not subside, Truss dismissed her finance minister, Kwasi Kwarteng, on October 14 as a consequence. It has also announced that it will rescind Boris Johnson’s proposed corporate tax hike in a bid to regain market confidence in the budget.
Who is Liz Truss?
Does Truss now have to worry about her office?
For the Tories, the question is whether Truss is still tenable for them after the turbulent start. The dismissal of Kwarteng may not change anything about that. Rumors have been circulating in recent days that the Tories are planning to oust their recently elected prime minister. There is great concern in the parliamentary group that the new government will gamble away the reputation of the Conservative Party as a fiscally responsible force.
Truss has also lost popularity among the population. In a survey conducted by the opinion research institute Opinium for the “Observer” at the beginning of October, the approval ratings for Truss among Britons fell from -9 to -37 within a week. According to the institute, the value is lower than that of ex-Prime Minister Boris Johnson shortly before his forced resignation (-28).
British Prime Minister Liz Truss in London.
Why was Finance Minister Kwasi Kwarteng criticized?
As finance minister, Kwasi Kwarteng was responsible for the government’s controversial economic plans. Despite the about-face in the tax cuts for the rich, Kwarteng wanted to stick to other, equally controversial parts of the economic plans. This included tax cuts for other income groups despite enormously high inflation.
Former British Treasury Secretary Kwasi Kwarteng.
According to a report in the Sunday Times, after the announcement of the economic plans, Kwarteng also took part in a party with hedge fund managers who profited financially from the fall in the British pound and encouraged Kwarteng in his course.
On October 31, Kwasi Kwarteng should have presented his full budget. It is doubtful that the government will stick to it.
On Friday (October 14) Kwarteng surprisingly left a meeting of the financial elite at the International Monetary Fund in Washington to deal with the escalating crisis in London. A little later, Kwarteng confirmed rumors about his dismissal on his Twitter channel.
Who is Kwasi Kwarteng?
What are the most pressing issues that Truss needs to address?
The future prospects for Great Britain have deteriorated dramatically in recent weeks and months. According to economic forecasts, the country is threatened with a recession and inflation rates of up to 18 percent. The NHS national health service is on the brink of collapse. And the massively rising energy prices are likely to limit the new government’s financial leeway, since she probably has to help the British: Many Britons are faced with the choice of either heating their homes or buying food. In many households, there will no longer be enough for both.
According to the latest estimates, up to 45 million Britons – two-thirds of the population – will be unable to pay all their bills without going into debt this winter. The situation will be particularly tense at the beginning of October, when the energy suppliers send out the new bills to the population. According to various media reports, hundreds of thousands of Britons plan to refuse to pay their energy bills in October.
Because of all the problems, Truss faces a Herculean task ahead of the 2024 general election of the British Parliament. In recent polls, the left-wing Labor party is around 8 percentage points ahead of the right-wing Tory party.
Why wasn’t Liz Truss elected by the people?
In Great Britain, the party leader of the party with the most votes is automatically prime minister – provided he can form a government. Normally, this happens through the parliamentary elections, which take place every five years. If, as in the current situation, the party leader of the ruling party is replaced in an ongoing legislature, no new elections will take place. It is first the parliamentarians of the party and then the party members who choose the new party leader and thus the next prime minister.
The reason for this is simple. In contrast to the USA or France, Great Britain does not have a presidential system. Each party, whether it is a large state party or a small regional one, has one candidate per constituency. The prime minister is also standing for re-election in his constituency. The party leader with the most MPs in parliament then receives the order from the royal family to form a government and thus becomes prime minister.