The new British Chancellor admitted that Britain's initial economic plan was wrong.
On October 15th local time, the new British Chancellor of the Exchequer Jeremy Hunter publicly stated that the fiscal plan previously formulated by the British government was too hasty, especially "mistakes" in issues such as large-scale tax cuts.
Three weeks ago, the British government introduced large-scale tax cuts aimed at boosting the British economy, but the market did not buy it. Even though two of the highly controversial plans were adjusted one after another, the country's Prime Minister Tras's ability to govern was inevitably questioned.
To restore his reputation in power, Tras fired Chancellor Kwasi Kwoten on October 14, urgently appointed Hunter to replace him, and decided to correct the previous planned mistakes.
However, the outside world does not seem to be optimistic about the major reversal of Tras's plan and emergency substitution. The prime minister, who has been in office for only more than a month, is facing a crisis in power.
After changing two plans, Tras urgently replaced him
On September 23, the then-Cancellor of the British government, Kwoten, announced that it would launch the largest tax cut in the UK since 1972, hoping to boost the economy, but it put the financial market in turmoil and aroused widespread doubts and criticism from the outside world.
Tax cuts belong to expansionary fiscal policy . For the UK, the effect of stimulating economic growth in the short term is limited, which will not only raise government debt risks, but also push up inflation. After the announcement of the "mini budget" plan, the British financial market directly encountered a "three-kill of stocks, bonds and foreign exchanges": the stock market fell sharply, the British Treasury bonds staged a "big collapse", and the pound 2 exchange rate fell to a historical low in nearly 40 years, and was once close to parity with the US dollar. The Bank of England and the government then had to announce remedies to temporarily stabilize market sentiment.
Outside analysis said that the reaction of the financial market is so strong, mainly because investors are uneasy about the surge in government lending without reducing spending.
KWorten once pointed out that the tax cut will cost a total of £45 billion by 2026, and most of the funds required for the tax cut will be financed by the UK government's expanded borrowing. The British think tank Institute for Finance (IFS) believes that large-scale tax cuts may increase government debt risks and believes that the continued growth through tax cuts will be a "gambling".
At the same time, among the large-scale tax cuts, the cancellation of the 45% maximum income tax rate plan is also considered to be a tax cut for the rich. International Monetary Fund (IMF) rarely criticized that tax cuts are likely to exacerbate income inequality in the UK.
Faced with violent market reactions and widespread criticism, Tras initially defended the tax cut plan, saying "it was the right plan." However, under heavy pressure, two key plans in the Tras administration's tax cuts have undergone major reversals.
The British government first gave up the cancellation of the maximum income tax rate plan on October 3. On the same day, then-Cancel Secretary Kwoten issued a statement saying that he would give up the previously proposed plan to cancel the maximum income tax rate of 45%.
Local time on October 14, 2022, London, UK, British Prime Minister Tras announced at a press conference that the company tax will be raised from 19% to 25%. Photo/IC photo
Just over 10 days have passed, and the Trass government has once again adjusted another plan in the tax cuts. On October 14, local time, Tras confirmed that he would increase the company tax from 19% to 25% in April next year. Before that, she said she wanted to cancel the company tax increase plan.
On the same day, Tras said at a press conference that the large-scale tax cut plan announced by the British government in September exceeded market expectations in terms of scale and speed, and the current government must strengthen fiscal discipline to appease the market.
On the same day, Tras fired Chancellor Kwoten, making him the second shortest-term secretary of the Exchequer on record. Former Health Secretary Jeremy Hunter became his successor.
Hunter said that the previously proposed fiscal plan is too "blindly optimistic" about the prospects and ignores the basic demands of ordinary people, which damages the credibility of the government. He stressed that in the current complex and challenging international and domestic environment, using lending to fund tax cuts "does not work", and reducing the tax for the rich is even more mistaken.
, CEO of the British think tank Resolution Foundation, said nearly half of the tax cuts, which initially amounted to £45 billion, have been cancelled so far, but the remaining tax cuts and the increasingly sluggish economic outlook will still create problems for government financing.
Tras's governing ability is questioned
Tax cuts are Tras' iconic economic proposal, but in more than a month after taking office, Tras introduced large-scale tax cuts, but quickly changed some plans and fired Kwoten, who had just taken office, and his governing ability was seriously questioned.
The British " Financial Times " said that Tras is facing "political destruction". In addition to the market, voters and their Conservative Party do not recognize her "signature economic policy."
On October 2, 2022, local time, British Chancellor Kwasi Kwoten (left) and British Prime Minister Tras (right) attended the opening ceremony of the Conservative Party’s 3 Annual Meeting. Photo/Visual China
Tony Travers from London School of Economics told AFP that Kwoten became a "scapegoat for government errors" and the removal did not relieve the pressure on Trass, nor did he calm the Conservatives down.
Poll expert John Curtis said Tras is now as unpopular as former British Prime Minister John Major after the Black Wednesday currency crisis, the last time the Conservatives suffered an economic disaster in 1992. After that, it took 18 years for the Conservatives to win another election.
For the Conservative Party, recent poll data are not optimistic. The results of the October 8 poll showed that the British opposition Labor Party had a sharply ahead of Prime Minister Tras' Conservative Party.
A poll conducted by YouGov from October 6 to 7 showed that the support rate of Labour Party was 52%, far higher than the 22% of the Conservative Party. Another poll by Opinium from October 5 to 7 showed that Labor's approval rating was 47%, leading the Conservative Party's 26%. The Opinium poll also showed that 53% of respondents believed that Tras should resign.
Tras's own public support rate is not optimistic either. A YouGov survey this month found that only 14% of the public had a positive impression of Tras, while 73% had a negative impression of her.
Outside analysis said that if more policy turns in the Trass government in the future, it may further endanger the position of Prime Minister of Tras. Some senior British MPs and analysts predict she will have difficulty surviving the current crisis.
"It doesn't matter what she continues to be Prime Minister, it feels like it's over," a senior lawmaker told the Financial Times.
"Times " reported that Kwoten, who had just been removed from office, believes that Tras's actions only bought her "just a few weeks".
" Washington Post " quoted a briefing by Eurasian Group analyst Mujetaba Rahmann, who predicted that Tras is likely to be ousted before the next election, and the next election must be held by January 2025 at the latest.
Beijing News reporter Zhu Yuehong
Editor Zhang Lei Proofreading Wu Xingfa
