Business tax to rise to 25% as UK PM takes economic steps to keep his job

Prime Minister of Great Britain Liz Trussfired his finance minister and close ally Kwasi Kwarteng on Friday and tried to save his job by reversing a controversial economic plan that plunged him into a political storm.

“We need to act now to calm the markets,” Truss said very tensely in a brief press conference in which she answered only four questions.

To do this, the conservative leader, who had been in power for just over a month, finally agreed to increase the corporate tax (from 19% to 25%), a measure by the previous government that she was determined to repeal.

But she said she was “absolutely determined” to follow through with the rest of her plan to “ensure stronger growth, a more prosperous UK and ride out the storm.”

In an extremely volatile market, the pound sterling reacted with a 1.20% fall against the dollar to $1.1188 per unit.

British financial markets were shaken by strong nervousness after the events of 23 September. Liz Truss and Kvarteng have presented a package of measures that includes significant state aid and tax cuts, but nothing to finance it.

As a result, interest rates on British government bonds soared, forcing the Bank of England to intervene by buying long-term bonds.

The central bank, an organization independent of the government, tried to stem the rise in interest but failed, and when it announced it would not extend purchases after this Friday, it created even more chaos in the markets.

In this tense environment, 47-year-old Kwarteng, a 47-year-old ultra-liberal born in London to Ghanaian immigrants, was ousted from office to try to save Truss.

The prime minister “asked me to step down as her finance minister. I agreed,” he wrote after hurriedly returning from Washington where he attended the annual meetings of the International Monetary Fund (IMF) and the World Bank.

crisis of confidence

Paolo Gentilini, head of the European Commission’s economics department from Washington, considered that what happened in the United Kingdom “shows how unstable the situation is” and about the need for countries to exercise “prudence” when conducting fiscal and monetary policy.

Kwarteng was replaced by former Foreign and Health Secretary Jeremy Hunt.

One of the most serious, if not very charismatic, figures among the candidates who fought for the leadership of the Conservatives in July, 55-year-old Hunt is popular in his parliamentary caucus.

According to the British press, MPs from the Conservative Party are already trying to remove Liz Trussin the face of failed polls that predict a crushing defeat for the right in the upcoming legislative elections.

They are scheduled for January 2025, but the political and economic storm caused by her controversial tax cut seems to be preventing the Conservative leader from staying in power until then.

Truss, 47, arrived at Downing Street on 6 September. He replaced the scandalous Boris Johnson, who was forced to resign due to the multiplication of scandals that undermined his popularity.

But just a month later, the new Conservative leader turned on the markets, the voters and the dignitaries of his own party.

Now it remains to be seen whether his new concessions are enough to calm the internal rebellion and the general crisis of confidence.

“A change in finance minister does not make up for the damage already done” and “we need a change in government,” said Rachel Reeves, head of the economics department of the opposition Labor Party, which far outperforms the Conservatives in the polls.

Under pressure from the formation, Truss and Kwarteng capitulated earlier this month to one of their most controversial measures: the abolition of the top tax rate, 45%, on incomes over £150,000 ($170,000) a year.

They have been accused of favoring the rich when many Britons are sinking into poverty, weighed down by inflation that is already close to 10% and should continue to rise.

According to a YouGov poll, 43% of voters who voted for Johnson’s Conservative Party in 2019 want another change of prime minister.

(AFP)