UK’s Truss sacrifices close friend Kwarteng over unloved fiscal plan
British Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng attend the annual Conservative Party conference in Birmingham, Britain, October 2, 2022. REUTERS/Hannah McKay/File photo
LONDON – He was one of her closest friends and supporters, but Prime Minister Liz Truss sacked Britain’s first Black finance minister Kwasi Kwarteng just 38 days into the job.
Such was Kwarteng’s ideological alliance with Truss that some insiders said the two all but shared the same brain, at least in their commitment to small-state, free-market economics.
Yet he ultimately carried the can for an unwelcome fiscal plan that roiled bond markets, spooked investors and sparked a major backlash from governing Conservative Party lawmakers.
Kwarteng, 47, had been in Washington for an International Monetary Fund (IMF) meeting where its chief bluntly told him that Britain’s fiscal policy shouldn’t undermine the Bank of England, which is raising interest rates.
Cutting his visit short, he flew back to London on Friday to “continue work at pace” for a medium-term fiscal plan due at the end of the month.
Instead, while he was in the air, it was decided Kwarteng had to go.
In a resignation letter, Kwarteng made it clear that Truss had requested his departure, and was unapologetic for their shared vision for Britain’s economy.
“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,” Kwarteng wrote to Truss.
Truss was selected by Conservative members last month to run the country on a low-tax agenda which vowed to challenge “Treasury orthodoxy”.
Charged with delivering that vision, Kwarteng fired the finance ministry’s most senior official Tom Scholar and unveiled a raft of unfunded tax cuts with a view of turning “the vicious cycle of stagnation into a virtuous cycle of growth”.
What he unleashed instead was a vicious cycle of falling market confidence, flight from British assets and such damage to the British bond markets that the Bank of England was forced to intervene and start buying gilts.
‘What a day’
Kwarteng’s self-confessed radical plan to spark economic growth after more than a decade of stagnation never landed well. Critics said the scrapping of the top rate of income tax, and the removal of a cap on banker bonuses, favoured the rich during one of the toughest cost-of-living crises in decades.
On Oct. 3, the government was forced into a U-turn on the top rate of income tax.
Kwarteng began a speech to the Conservative Party conference later that day with a quip: “What a day!”
But the U-turn was not enough. Nor were further moves to re-embrace Treasury orthodoxy through the choice of Scholar’s replacement and a decision to bring forward a medium-term fiscal plan and forecasts.
The Institute for Fiscal Studies (IFS) said Kwarteng had to make 62 billion pounds ($69.7 billion) of spending cuts or tax rises to stop public debt growing as an ever larger share of the economy.
Truss’s own Conservative lawmakers were also unhappy with how she and Kwarteng were handling things. At a meeting with lawmakers on Wednesday, she indicated a willingness to engage with their concerns, a sign concessions might be offered.
“There’s a dawning realisation that governing is more complex that it might first seem,” one lawmaker who attended the meeting said afterwards.
“It’s quite difficult to see how you get out of the trap we’re in without some probably fairly substantial move.”
In a reply to Kwarteng, Truss said she was deeply sorry to lose a long-standing friend from government. “I deeply respect the decision you have taken today. You have put the national interest first,” she wrote.
‘I wish you well’
The son of Ghanaian immigrants, Kwarteng attended Eton, one of Britain’s most prestigious private schools, which has been the alma mater of numerous politicians.
Kwarteng scored a “double-first” at Cambridge University in Classics and History, as well as attending Harvard University in the United States.
His tenure as finance minister, known in Britain as Chancellor of the Exchequer, is the shortest since 1970, when Conservative Iain Macleod died one month into the job.
But a finance minister being ditched so quickly for his policies – especially when they were so closely aligned with the prime minister – is unprecedented in modern times.
In Kwarteng, Truss had picked a fellow ideologue with whom she co-wrote a book that spells out a low tax, small state, deregulated vision of Britain.
A lawmaker since 2010 and economic historian known for his intellect, some warned Kwarteng did not have the experience to run the huge finance ministry.
A veteran Conservative source said before his appointment that the Treasury would “approve of his brain (but) disapprove of his independence.”
And now Truss – whose first weeks in power have made her few friends – has made a potential enemy out of one of her closest allies, though he said he would stay loyal.
“Your success is this country’s success,” he wrote to Truss. “And I wish you well.”
($1 = 0.8895 pounds)
