Updated Oct 14, 2022 - World

U.K.'s Truss ousts finance minister and partly reverses tax cut plan

Chancellor of the Exchequer Kwasi Kwarteng

Chancellor of the Exchequer Kwasi Kwarteng attends a meeting on Oct. 4 in Birmingham, England. Photo: Ian Forsyth/Getty Images

U.K. Prime Minister Liz Truss ousted finance minister Kwasi Kwarteng on Friday before scrapping a key part of a controversial economic package that roiled markets.

Why it matters: Truss and Kwarteng, who was the chancellor of the Exchequer, spent an immense amount of political capital attempting to implement their tax cut plan. She is now attempting to "reassure the markets of our fiscal discipline" and salvage her premiership.

  • They had hoped the cuts would stimulate growth, but it instead sparked criticism from their own party and severely weakened the pound, which at one point fell to a record low against the dollar.
  • The proposal — which would've cut about $48 billion worth of taxes if implemented in full — pushed the Bank of England to intervene to prevent a broader economic crisis.

Driving the news: In a dramatic U-turn on Friday, Truss said she would raise the country's corporate tax rate and implement a hike planned under former Prime Minister Boris Johnson.

  • The hike will increase corporate income taxes from 19% to 25%.
  • Earlier this month, the government abandoned a widely criticized part of the plan to cut taxes for the country's highest earners.
  • Downing Street said Kwarteng would be replaced by Jeremy Hunt, who served as the U.K.'s foreign secretary under former Prime Minister Theresa May.

The intrigue: Kwarteng on Thursday had insisted he was sticking with the rest of the tax plan and told reporters: "I'm not going anywhere."

  • He cut short a trip to attend IMF meetings in Washington, D.C., to return to London and meet with Truss.

What they're saying: "It is clear that parts of our mini budget went further and faster than the markets were expecting," Truss said at a press conference. "So the way we are delivering our mission right now has to change.

  • "We need to act now to reassure the markets of our fiscal discipline," she added.

"When you asked me to serve as your Chancellor, I did so in full knowledge that the situation we faced was incredibly difficult, with rising global interest rates and energy prices," Kwarteng wrote in a letter to Truss after spending less than six weeks on the job.

  • He added: "We have been colleagues and friends for many years. In that time, I have seen your dedication and determination. I believe your vision is the right one."
Go deeper