LONDON – Britain’s new finance minister warned of “difficult decisions ahead” on Saturday, the morning after he replaced his predecessor who had only spent 38 days in office.
Jeremy Hunt told a group of British news anchors that the tax cuts promised by embattled Prime Minister Liz Truss would not be as large as initially thought, and government departments would have to cut their budgets.
Warning of ‘difficult decisions ahead’, Hunt told Britain’s Sky News: ‘Some taxes won’t go down as quickly as people want, some taxes will go up.’ (Sky News is owned by Comcast, the parent company of NBC News.)
He added that “all government departments will have to find more efficiencies than they had planned,” referring to the return to the economics of austerity, the fiscal policy favored by successive leaders of his ruling conservative party in the wake of the 2008 financial crash.
Hunt also repeated a statement from the UK Treasury on Friday saying he would set out the government’s medium-term fiscal plan on October 31.
He conveyed a similar message to several other British broadcasters while trying to distance himself from his predecessor, Kwasi Quarting, who was sacked on Friday after weeks of market panic fueled by an economic plan he laid out last month.
Kwarteng became the second shortest serving Treasury Secretary, as the British Chancellor of the Exchequer.
Amid speculation that she could be impeached just weeks after taking office, Truss said at a news conference on Friday that she had changed tack “to reassure markets about our fiscal discipline.”
She was also seeking to reassure members of the Conservative Party whose poll numbers have fallen along with the value of the pound.
“The financial crisis in which the UK is currently finding itself could unfortunately have been avoided,” George Deeb, head of the Center for Economic Justice at the Institute for Public Policy Research, a London think tank, told NBC News on Saturday.
Earlier this month, after repeatedly rejecting any proposal to change course, Truss struck down a proposal to cut taxes on those earning more than £150,000 a year ($167,000).
That failed to placate the markets or lawmakers.
The plan called for a tax cut of 45 billion pounds ($50.4 billion) – more than the UK’s annual defense budget – but without specifying how that would be funded or what services would have to be cut as a result.
The proposal saw interest rates and mortgage payments rise, the value of the pound and the government’s cost of borrowing crashing. More details about this were to be revealed in a speech on October 31, but the political and economic damage has already been done.
The Bank of England was forced to step in and buy billions of pounds of government bonds, known as gold bonds, to calm the market. In doing so, the bank warned of “material risks” to the entire British financial system.
On Tuesday, the bank said it had intervened to halt the “fiery selling.” Crucially, the bank’s bond-buying program was due to end on Friday, meaning the government had to convince markets that its economic plan was sound enough to avoid further chaos.
The International Monetary Fund has harshly criticized the unfunded tax cuts, while economists and commentators around the world have questioned the wisdom of such an extreme plan.
“While Kwarteng’s dismissal and a reversal of some unfunded tax cuts may provide some breathing space, the damage appears to have already been done, not only to the economy but also to confidence in this government,” Dibb added.
Although Depp agreed with Hunt’s assessment that the tax increases were likely necessary, he said, “After a decade of austerity, no more public sector cuts are available.”
Rumors are already circulating that senior members of the Conservative Party are planning how to remove the prime minister from power, and for Anand Menon, professor of European politics at King’s College London, “the question is whether Liz Truss can stay in next week”.
Britain’s last two prime ministers, Theresa May and Boris Johnson, resigned after an internal Conservative Party struggle made their positions unacceptable. Truss is Britain’s third prime minister in six years.
Menon added that government options were increasingly limited, and that the poor market reaction to Jeremy Hunt’s media appearance would leave the British government with no choice but to make further shifts.
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