Under fire, U.K. PM Liz Truss dumps finance minister and scraps tax plan

British Prime Minister Liz Truss fired her finance minister,Kwasi Kwarteng, on Friday and scrapped parts of their economic package in a desperate bid to stay in power and survive the market and political turmoil gripping the country.

Kwarteng said he had resigned at Truss's request after rushing back to London overnight from International Monetary Fund (IMF) meetings in Washington.

Truss, in power for only 37 days,then told a news conference she would now allow a key business levy to rise from next year, raising 18 billion pounds, as she accepted she had gone "further and faster" than markets had been expecting.

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

Former foreign minister Jeremy Hunt has been made Kwarteng's replacement, Truss's office said Friday.

"You have asked me to stand aside as your Chancellor. I have accepted," Kwarteng said his resignation letter to Truss, which hepublished on Twitter.

She said in response: "As a long standing friend and colleague. I am deeply sorry to lose you from the government.

"We share the same vision."

The British pound slid against the U.S. dollar after she spoke, trading 1.2 per centlower on the day at $1.1198 US and two-year British government bonds, known as gilts, turnednegative.

The plan for unfunded tax cuts crushed U.K. assets and drew international censure, but the pound and gilts have started to recover since the government started looking for ways to balance the books.

Shortest term in 52 years

Kwarteng is the country's shortest-serving chancellor since 1970, and his successor, Hunt, will be the fourth finance minister in as many months in Britain, where millions are facing a cost-of-living crisis. The finance minister with the shortest tenure died.

Truss's own position is in jeopardy.

She won the Conservative Party leadership last month by promising vast tax cuts and deregulation to try to shock the economy out of years of stagnant growth, and the fiscal policy Kwarteng announced on Sept. 23 aimed to deliver that vision.

Truss explains firing finance minister

2 years ago

Duration 3:20

Saying she 'acted decisively today,' British Prime Minister Liz Truss is promising fiscal discipline and reduced spending after firing Finance Minister Kwasi Kwarteng.

But the response from markets was so ferocious that the Bank of England had to intervene to prevent pension funds from being caught up in the chaos, as borrowing and mortgage costs surged.

Mounting pressure

The duo hadsince been under mounting pressure to reverse course, as polls showed support for their Conservative Party had collapsed, prompting colleagues to openly discuss whether they should be replaced.

Having triggered a market rout, Truss now runs the risk of bringing the government down if she cannot find a package of public spending cuts and tax rises that can appease investors and get through any parliamentary vote in the House of Commons.

Her search for savings will be made harder by the fact the government has been cutting departmental budgets for years.

At the same time, the Conservative Party's discipline has all but broken down, fractured by infighting as it struggled first to agree on a way to leave the European Union and then how to navigate the COVID-19 pandemic and grow the economy.

"If you can't get your budget through Parliament, you can't govern," Chris Bryant, a senior lawmaker from the opposition Labour Party, said on Twitter. "This isn't about U-turns, it's about proper governance."

During his time in the U.S.,Kwarteng had been told by the head of the IMF of the importance of "policy coherence," underlining how far Britain's reputation for sound economic management and institutional stability had fallen.

In Westminster, Truss was trying to find agreement with her cabinet ministers on a way to preserve her push for growth while reassuring the markets and working out which of the measures could be supported by her lawmakers in Parliament.

Earlier a minister in the trade department, Greg Hands, had said people wanting details on the budget would have to wait until Oct. 31, when Kwarteng was due to set out his full plan alongside independent forecasts that will show the cost of the tax cuts to the public finances and whether they will boost economic growth.

Critics of the government had said that wait was unacceptable.

Rupert Harrison, a portfolio manager at BlackRock and once an adviser to former British finance minister George Osborne, said markets have now almost fully priced in a U-turn.

"(That) means if the U-turn doesn't come markets will react badly," he said on Twitter.