| 29 February 2024, Thursday |

UK’s Truss thinking of new tax policy U-turn, media reports say

Some media outlets claimed on Thursday that British Prime Minister Liz Truss is considering revising more of her government’s contentious “mini-budget,” sparking a rise in the damaged pound and British government bonds.

Downing Street was debating whether to withdraw portions of the proposal that shook financial markets the minute finance minister Kwasi Kwarteng revealed it three weeks ago, Sky News said, citing sources.

The Sun newspaper said Truss was considering allowing a rise in corporation tax to take place next April, something she promised to halt in her bid to be prime minister, in which she vowed to sweep away the “orthodoxy” of economic policy.

Finance minister Kwasi Kwarteng, asked repeatedly in an interview with BBC television whether the reports of a change of policy on corporation tax were accurate, said that he was focused on his growth plan.

“Our position hasn’t changed. I will come up with the medium-term fiscal plan on the 31st of October, as I said earlier in the week, and there will be more detail then,” he said on the sidelines of International Monetary Fund meetings.

Kwarteng is due to announce his medium-term budget plans on Oct. 31, alongside independent fiscal forecasts.

Truss is under huge pressure within her Conservative Party to change her push for 43 billion pounds ($48.8 billion) of unfunded tax cuts as polls show her support has collapsed and investors have balked at the potential impact on the public finances.

Some lawmakers have pondered whether she should be removed from the job only a month after becoming Britain’s fourth prime minister in just six years since the Brexit referendum.

The pound, which has fallen sharply since Truss emerged as the front-runner to enter Downing Street in August, leapt on the reports and was up almost 2.5% against the U.S. dollar shortly after 5pm (1600 GMT) on Thursday.

British government bond prices also recovered some of the steep losses incurred since Kwarteng’s “mini-budget” announcement on Sept. 23.

Kwarteng, asked by the BBC about any discussions going on back in London to tear up his package, said: “I speak to the prime minister all the time, and we are totally focused on delivering the growth plan.”

He and Truss bowed to pressure earlier this month and ditched part of the mini budget which would have eliminated the top rate of income tax, something they had said would help spur Britain’s sluggish economic growth rate. The IMF has said it would worsen inequality.

The government has repeatedly said it will stick to the rest of the tax cut plans while also protecting public spending, but economists and critics say something has to give.

In a sign of how far Britain’s reputation for sound economic management and institutional stability has fallen, the head of the IMF, Kristalina Georgieva, said on Thursday she had told Kwarteng of the importance of “policy coherence and communicating clearly”.

“I do believe that it is correct to be led by evidence. If the evidence is that there has to be a recalibration, it is right for governments to do so,” she told reporters.

  • Reuters