There is a new Finance Minister in town, and he wants to stabilize the Pound. The UK’s economy has been struggling under Liz Truss proposed tax plan, but things are changing.
The UK economy can finally catch a breath after over a month of financial instability and decline in the Pound’s value. Last week, after the Bank of England decided to stop its buying program, the Pound fell once again.
There are many reasons why the UK’s economy is doing so poorly. First and foremost, in the European context every economy is struggling under constant pressure of the energy crisis. Every country is trying to make plans to survive the next winter, when Russia will likely turn off the gas taps following sanctions for its invasion of Ukraine.
At the beginning of September, the new government of the UK took office. The new Prime Minister, Liz Truss, almost immediately announced the new fiscal plan that would theoretically save the British economy. The plan, drafted by the at-the-time Finance Minister Kwasi Kwarteng, included a 45 billion pounds tax cut for the richest percentile.
This horrible tax cut, that was not supported by any other economical measure, received immediate backlash. Anyone from the International Monetary Fund (IMF) to Conservative MPs and even US President Joe Biden said that such a tax cut was a horrible idea. The only justification the Truss’ government could give was that it would “increase investments”, but this convinced nobody.
A reshuffle of cabinet: enter Jeremy Hunt
In fact, the negative feedback was so strong that Truss almost immediately backed out from the plan, saying that they would announce a new one on October 31st. Meanwhile, Finance Minister Kwasi Kwarteng was removed from office and replaced by Jeremy Hunt.
The new Finance Minister decided to step back from the tax cut plan, announcing new measures instead. The details will be revealed on October 31st, but what we know so far is that the new plan will raise 32 billion pounds yearly. The proposed tax cut is postponed “indefinitely” and the new focus will be the energy policy.
With the country possibly facing 3 hour long blackouts daily, Hunt also reversed the subsidy scheme previously proposed by Truss. The subsidies will run only until next April, and then become more targeted. The government will create a 10 years long plan on energy policies.
This sparked criticism from the Labour Party, which reminded that it will be the common household which will bear the brunt of the energy crisis. According to recent analysis, the common British family will spend up to £2.500 yearly for the next two years.
In any case, Hunt’s speech calmed down the market. The Pound raised 1.4% in value, and many hope in the currency’s future stability.
