In reaction to the news, the pound rose again against the US dollar on Monday morning, returning to where it had been before the “mini-budget” announcement.
But the ascent to power is a major blow to the young Trudeau government, which has been in office for less than a month. Its plans to offer tax cuts to Britain’s highest earners – at a time when millions are facing financial hardship from the cost of living crisis – have been widely condemned.
Investors dumped the pound and government bonds, fearing the measures would worsen inflation. In a highly unusual move, the Bank of England intervened last week to stem the financial market turmoil. Some conservative politicians accused their own government of being deaf.
We get it, we asked.
Abolishing the 45% rate has become a distraction from our work to move Britain forward.
Our focus now is on building a high-growth economy that funds world-class public services, raises wages and creates opportunity across the country. https://t.co/ee4ZFc7Aes
— Liz Truss (@trussliz) October 3, 2022
The dramatic U-turn greatly weakens the government and exposes Truss’ lack of support from his own backbenchers, said Eurasia Group analyst Mujtaba Rahman. His critics “now smell weak,” he said in a brief note.
On a recent Sunday morning, Truss defended his economic plans and said he was committed to tax cuts. In remarks to reporters overnight, the new finance minister, or finance minister Kwasi Kwarteng, was expected to defend the tax cuts in a speech to the Conservative Party’s annual conference late Monday.
Instead, on Monday morning, he said in a statement: “We get it, we asked.”
Trudeau’s government unveiled its highly controversial economic plans on September 23 in a “mini-budget”. It called for the country to borrow billions for tax cuts and spending that would keep consumers from rising energy bills. Only 2 billion pounds ($2.2 billion) of the promised 45 billion pounds ($50.3 billion) in cuts pushed the higher tax rate, but it was a highly controversial move.
Not only did this trigger stormy financial weather, but the Conservative Party’s popularity plummeted. A stunning poll by UGO found the Conservatives 33 points behind the opposition Labor Party, a gap not seen since the 1990s.
The government has also faced a growing backlash from within its own ranks, with many conservative lawmakers publicly voicing their opposition. “I cannot support scrapping the 45p tax when nurses are struggling to pay their bills,” tweeted Conservative MP Maria Caulfield, who served as health minister in the previous government. Michael Gove, a senior Conservative, said unfunded tax cuts were “unconservative”.
The plans still need to be passed by parliament, and some critics have questioned whether they will.
Asked by the BBC if he was abandoning plans because of a lack of support in parliament, Kwarteng said: “It’s not a question of getting it done; it’s a question of actually getting people behind the move. It’s not about parliamentary games or votes in the House of Commons. It’s about listening to the people, listening to the people, doing this. expressed very strong opinions about, and on balance I thought it right not to proceed.
In interviews, Kwarteng has said he is not considering resigning, but analysts say he is not out of the woods yet and his Monday afternoon speech to the Conservative Party faithful will be closely watched.
Truss will also address the party conference this week. In his first address to the conference as prime minister on Wednesday morning, Truss will seek to calm those angry at how his government has acted in its early days in office.
Rahman, the analyst, warned that there could be fresh protests over plans to raise the cap on bankers’ bonuses and the real possibility of steep spending cuts needed to deal with dramatic revenue losses and help with energy bills.
Rahman said the turmoil of the past 10 days would strengthen the voices of those calling for changes to the rules for the Conservative Party leadership so that lawmakers, rather than 160,000 grassroots members, would make the final decision on who becomes leader.
Druss won support and became Prime Minister Members of the Conservative Party Across the country, a majority of lawmakers supported his rival, Rishi Sunak.