Markets rebounded with reports of a reversal by UK Prime Minister Truss over tax plans

  • New Prime Minister Truss under pressure over economic proposals
  • Unfunded tax cut scheme disrupts bond market
  • The government’s position in the opinion polls is declining

LONDON (Reuters) – Prime Minister Liz Truss is reconsidering plans to cut taxes that have disrupted markets with a possible shift in business fees, British media reported on Thursday, although her office said there would be no change of course. .

Truss’ economic package, announced last month, has caused a rout in the government bond market, with some investors and Tory MPs calling for it to back off a 43 billion pound ($48 billion) unfunded tax cut plan, including a move to comment. Corporate tax at only 19%.

Sky News quoted sources as saying discussions were underway over whether to scrap some parts of the plan, and The Sun said Truss is now considering raising the corporate tax after all. It was not clear if any decisions had been made.

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The pound – which has fallen sharply since Truss emerged as the premier candidate in August – has jumped against the US dollar and UK government bond prices have offset some of the heavy losses they have incurred since the “mini-budget” was announced on September 1. 23.

US stocks are set to open higher after these reports.

Truss has come under tremendous pressure from within the ruling Conservative Party to change course as polls show support has collapsed, with some lawmakers considering whether she should be removed from office just a month into her tenure as prime minister.

The government has repeatedly said it will stick to most of its plans to cut taxes while also protecting public spending, but economists and critics say something has to be done.

On Thursday, Secretary of State James Cleverly declined to confirm or deny whether the government would keep its corporate tax policy, saying only that it was important to keep companies competitive.

Asked about Cleverly’s comments and whether Truss would again commit not to make further changes to her tax cut package, her spokesperson said: “Yes…the situation has not changed.”


There has been strong criticism of the government’s sweeping plans from some members of the Conservative Party.

Asked about the growing opposition, a spokesman for Truss said it was focused on achieving growth and challenges such as the war in Ukraine.

But newspapers reported that some lawmakers who had never wanted to replace Truss with Boris Johnson as leader in the first place, actually wanted to fire her.

“I think a leadership change would be a disastrous bad idea, not only politically but economically, and we will continue to focus on growing the economy,” Cleverly said of Truss.

Truss, the 47-year-old former foreign secretary, was elected in September by Conservative Party members on a promise to pull the economy out of the stagnation years by cutting taxes and reforming areas such as planning, immigration and employment.

Any reversal of her plans would be a huge embarrassment.

Inconspicuous gear removal mechanism. Under current rules, lawmakers can only write letters to call for a vote of no-confidence when the leader has been in office for a year.

But the fiery selling in the government bond market has driven up borrowing costs and mortgage rates and forced the Bank of England to step in to protect pension funds.

“I can only see one result: Most of the micro-budget is pulled out,” said Paul Goodman, editor of the influential website ConservativeHome.

really sick

The Bank of England’s emergency bond purchases are set to expire on Friday but many analysts believe it will have to maintain some form of support as investors remain concerned about the government’s plans.

“The central bank is like a doctor: if the patient is really sick, and even if the patient has misbehaved, it is very difficult for the doctor to go,” said Mohamed El-Erian, Allianz’s chief economic adviser and president of Queens. College, Cambridge.

“So the reality of emergency central bank interventions is that they tend to last longer than expected. Central banks are simply not going to pull out,” he told BBC Radio.

Finance Minister Kwasi Koarting is due to present a full fiscal policy to Parliament along with borrowing and growth forecasts on Oct. 31, but El-Erian warned of damage in the meantime.

“People’s confidence and business confidence are dropping. So if we wait another three weeks, there will be more damage not only to actual growth, but also to potential growth,” he said.

There are already signs that higher borrowing costs are feeding into the real economy as higher mortgage costs cool the housing market.

The Royal Institution of Chartered Surveyors said on Thursday that house prices showed the weakest growth in September since the start of the coronavirus crisis, and appear to be heading lower with the recent rise in mortgage rates.

The country’s largest home builder, Barat (BDEV.L), it has reported a decline in bookings in recent months, causing an earnings warning to be issued after a few strong years for the sector. Read more

(dollar = 0.9040 pounds)

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(Additional reporting by William Schaumberg, Movija M, Alistair Smoot and Elizabeth Piper) Writing by Kate Holton and Michael Holden; Editing by Toby Chopra

Our criteria: Thomson Reuters Trust Principles.

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