Finance Minister Kwasi Karteng is reasonable after the pound exchange rate plummeted and internal party pressure mounted: “We understand, we listen.” He must still remain in office.
In the face of fierce criticism from within her party, the new British prime minister, Liz Truss, made a sharp turnaround early in her term. After several Conservative lawmakers threatened to vote against the planned cut in the maximum tax rate for the richest, Finance Minister Kwasi Kwarteng withdrew the plan. “We understand, we listen,” he said Monday at the Conservative party conference in Birmingham.
Markets reacted positively, the pound, which had recently been under heavy pressure, soared. But the impact on Truss, who had defended her plans the night before, could be devastating. “His critics, who are many, are getting the message that other unpopular measures – such as public spending cuts – could also be overturned,” commented Sky News. The reputation of the 47-year-old, who had announced that she would firmly enforce even controversial decisions, suffered enormously.
Truss and Kwarteng reviews from all sides
Political scientist Mark Garnett called the reversal “the most humiliating decision” by a British government in decades. “Britain is now facing a long phase of economic stagnation with a government whose reputation has already been irreparably damaged,” Garnett told the German Press Agency. A convention attendee with good connections in the conservative group said lawmakers were deeply uneasy. “They dare not publicly defend the government’s line because they fear the line will change overnight,” the man said.
Finance Minister Kwarteng announced a week ago, among other things, that he would lower the maximum tax rate for annual income of at least £150,000 (€172,000) from 45 to 40 percent. The government wants to use it to boost economic growth. After the announcement of the debt-funded plans, the pound rate plummeted.
The British central bank felt compelled to step in and buy government bonds with long maturities – no cap. Several prominent members of the Conservative party, including former ministers Michael Gove and Grant Shapps, criticized tax breaks for the wealthy at a time of rising cost of living and indicated they would vote against it in Parliament. However, Kwarteng wants to stick to other equally controversial parts of the economic plan.
Whose idea was it?
The Minister of Finance is now under huge fire. Not only did Truss admit on Sunday that she and Kwarteng made the decision on their own. The prime minister also pointed out that cutting taxes for the richest was Kwarteng’s idea. The fact that the former hedge fund employee attended a reception with hedge fund managers the night after his plans were announced also caused outrage.
However, Kwarteng is expected to remain in office for the time being. Because a change in this important position would likely destabilize markets even further. Specialist Garnett sees another reason why full-scale rebellion is unlikely to happen. “Conservative lawmakers are not willing to change their party leader again,” he said. Because then a new election is hardly avoidable – according to polls, however, several Conservatives would lose their mandates in this case.
(APA/dpa)