Economic storm tests Britain’s new leader, alarms Conservatives

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LONDON (AP) – Britain’s new Prime Minister Liz Truss came under mounting pressure from opponents – and within her Conservative Party – on Wednesday to reverse announced tax cuts that are fueling a financial crisis in an already struggling economy.

The Bank of England stepped in to buy government bonds to stabilize borrowing costs after the government announced last week that it would cut income tax and cancel a planned corporate tax hike, while spending billions to curb rising energy bills houses and shops.

Friday’s “mini-budget” sparked market unease over the level of the UK government debt, sending the pound to record lows against the US dollar.

Neither Truss nor CFO Kwasi Kwarteng have commented publicly on the turbulence. Conservative lawmakers watched with growing concern as the currency struggled at near-record lows. The UK central bank has signaled that a sharp rate hike is on the cards for its next meeting in November.

“This inept madness cannot go on,” wrote Simon Hoare, a Conservative MP, on Twitter. Another Tory MP, Robert Largan, said he had “serious reservations” about some of the Government’s announcements.

“There’s a lot of concern within the House of Commons, there’s no doubt about it,” said Mel Stride, Conservative leader of the House of Commons Finance Committee.

Andrew Griffith, a junior minister at the Treasury, said the government would not reverse course but would “get on board and implement” its plan.

All major opposition parties have called for Parliament to be called back early from a two-week break to allow lawmakers who are not due to return to the House of Commons until October 11 to face the crisis.

“A lot of people are going to be very worried right now about their mortgage, about rising prices and now about their pensions,” said Labor Party leader Keir Starmer. “What the government needs to do now is to recall Parliament and abandon this budget before any more damage is done.”

Truss was appointed prime minister on September 6 after winning a Conservative Party leadership contest to replace Boris Johnson, who resigned in July after a three-year tenure marred by ethics scandals.

Truss, an advocate of free-market, low-tax conservatism who cites 1980s political icons Margaret Thatcher and Ronald Reagan as inspiration, pledged during her campaign to cut taxes and bureaucracy to boost Britain’s sluggish economy.

Truss and Kwarteng vowed to challenge the economic “orthodoxy” they claim is holding Britain back. One of Kwarteng’s first acts was to fire Treasury Secretary Tom Scholar.

However, many Conservatives were surprised by the magnitude of the announced tax cuts – and the strength of the market reaction.

The £45 billion ($49 billion) of cuts, to be financed through borrowing, would come after the government just agreed to spend billions more to protect homes and businesses from soaring energy prices brought on by caused by the Russian invasion of Ukraine.

The growing debt raises the prospect that the government will have to borrow more at ever higher costs and, as a result, cut public spending.

The government says it will set out how it intends to pay for the cuts on November 23, along with an economic forecast from the independent Office for Fiscal Responsibility.

“I don’t think we can wait until November,” Conservative lawmaker Roger Gale told the BBC. “We indeed need an explanation in a very short time to calm the nerves, calm the market and set out the business plan very clearly.”

Adam Tomkins, a former Conservative Member of Scottish Parliament, said Trussonomics was “deeply unconservative”.

Tomkins, now a law professor at the University of Glasgow, said the pound’s “hammering” “is the strongest possible sign that markets are not buying the newfound recklessness, the dogma that cutting taxes can lower public spending.”

“What we are seeing is not just the Conservative Party ruining its own brand, but the Conservative Party ruining the economy,” he wrote in the Herald newspaper.

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