LONDON — New British finance minister Jeremy Hunt will announce tax and spending measures on Monday, two weeks earlier than scheduled, as he races to stem a dramatic loss of investor confidence in Prime Minister Liz Truss’s government.
Battling to rewrite Truss’s economic program since he replaced the fired Kwasi Kwarteng on Friday, Hunt is expected to make a statement around 11:00 a.m. (1000 GMT) to try to halt a bond market rout that has raged since the government set out vast unfunded tax cuts on Sept. 23.
Sterling was up about 0.8% against the dollar in trading in Asia. Some lawmakers in the ruling Conservative Party – agitating to drive Truss out of office – said it was now clear that Hunt had seized control of the government.
“The chancellor will make a statement later today, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability,” the finance ministry said in an unexpected statement released around 6 a.m.
“He will also make a statement in the House of Commons this afternoon.”
Truss, Britain’s fourth prime minister in six years, was elected last month by party members on a platform to snap the economy out of years of stagnant growth by slashing taxes and regulation.
But markets reacted violently, hammering the value of the pound and government bond prices, and forcing Truss to fire her finance minister and appoint Hunt to reverse course.
HOLE IN PUBLIC FINANCES
Hunt, who met Truss over the weekend, is now expected to scrap most of the tax cuts and set out plans to cut spending to narrow a hole in public finances that the Sunday Times reported was as big as 72 billion pounds ($81 billion).
“Strong start by Jeremy Hunt as chancellor,” Mel Stride, a lawmaker from the ruling Conservative Party who chairs parliament’s Treasury Committee, said on Twitter.
“Message is ‘we get what needs to be done and it’s being sorted’.”
Veteran Conservative lawmaker Roger Gale said the power in Downing Street now lay with Number 11, the home of the chancellor, and not Truss’s Number 10. “I think Jeremy Hunt is de facto prime minister,” he told BBC Radio. Hunt will deliver a fuller medium-term fiscal plan as scheduled on Oct. 31 alongside forecasts from the independent Office for Budget Responsibility, the Treasury said.
He met Bank of England (BoE) Governor Andrew Bailey and the head of Britain’s Debt Management Office late on Sunday to brief them on his plans, the Treasury said.
Hunt was given a small vote of confidence early on Monday when long-dated British government bond prices rallied on the first morning of trading without the support of the BoE’s emergency bond-buying program that expired on Friday.
Yields on 20- and 30-year gilts slid by around 23 basis points shortly after the markets opened at 8 a.m., reversing the sharp rises seen on Friday after a statement by Truss failed to reassure investors about the government’s fiscal plans.
The Bank said on Monday that its intervention had enabled a significant increase in the resilience in the sector.
“SHOW THE MARKETS”
Paul Johnson, the head of the Institute for Fiscal Studies, said it would be difficult for Hunt to give explicit details on spending cuts when he had only just entered the Treasury.
“The big picture clearly is that there wasn’t room for 40 odd billion pounds of tax cuts,” he told BBC Radio.
Hunt said on Saturday some taxes would go up, spending would rise less than previously planned and that he hoped investors would take note of his changes that represented a near total U-turn in fiscal policy.
“No government can control the markets. No chancellor should seek to do that,” the former foreign and health minister told BBC television in an interview broadcast on Sunday.
“There is one thing we can do and that’s what I’m going to do, which is to show the markets, the world, indeed people watching at home, that we can properly account for every penny of our tax and spending plans.”
The political editor of The Times said Truss and Hunt agreed to Sunday to delay a cut in income tax for workers until 2024, a year later than Truss originally planned.
BoE Governor Bailey gave Hunt a vote of confidence on Saturday, saying they had an “immediate meeting of minds” on the need to fix the public finances.
But Bailey also said interest rates would probably have to go up sharply next month, even with the economy likely to go into a recession soon.
Goldman Sachs said on Sunday it expected Britain’s economy to shrink by 1.0% in 2023, a more severe contraction than its previous forecast of a 0.4% shrinkage, as Truss’s tax cuts were reversed. ($1 = 0.8887 pounds)
(Writing by William Schomberg and Kate Holton; Editing by Gerry Doyle, Kate Holton and Alex Richardson)