UK’s new finance minister seeks to calm markets, hints at end of Trussonomics

Chancellor of the Exchequer Jeremy Hunt said the UK faces tough decisions on tax and spending as he seeks to calm financial markets with a significant change in economic direction after weeks of chaos unleashed by his predecessor and Prime Minister Liz Truss .

“Spending will not increase as much as people want and there will be more efficiencies to be found,” Hunt said in an interview with Sky News on Saturday. “We’re not going to have the rate of tax cuts we’re hoping for and need some tax increases — that’s the reality of the very challenging situation we’re facing.”

Hunt replaced Kwasi Kwarteng on a dramatic Friday that saw Truss fire her longtime ally and make another major about-face in her economic strategy, desperate to keep her job.

The new chancellor made it clear that while he agreed with Truss’s reasoning about the need for growth, he disagreed with how she and Kwarteng had proceeded. Using loans to fund tax cuts “doesn’t work,” he told BBC radio. Other “mistakes” included trying to cut taxes on Britain’s highest earners, he told Sky News, a plan they abandoned after a fierce political backlash.

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Challenges for Jeremy Hunt

The new chancellor faces a major challenge to calm the markets. While Truss said the lifting of her plan to freeze corporate taxes will bring in £18 billion ($20 billion) a year, Bloomberg Economics estimates about £24 billion more savings or revenue increases are needed to get the debt back on a sustainable track bring to.

“What the people want, who want markets, what the country needs now is stability,” he said. “No chancellor can control the markets. But I can show that we can pay for our tax and spending plans.”

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Hunt said all government departments need to find “efficiency,” which, if he pushed, could actually mean “cuts.” He denied there would be a return to austerity at the levels enforced by the Conservative-led coalition government in the early 2010s.

His comments may have set Truss up for another humiliating about-face after she tried to reassure her troubled MPs in Parliament on Wednesday that there would be “absolutely” no spending cuts. Hunt also declined to accept Truss’ promise to increase defense spending to 3% of economic output, although he added he would not make any commitments until he saw Treasury Department figures.

Turbulent Markets

Truss’ double-take on Friday of sacking Kwarteng and saying corporate tax will rise from 19% to 25% next year, as previously planned by her predecessor Boris Johnson, failed to steady the ship as both that Pounds fell as well as the gilts talked behind her.

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High Priest of Trussonomics ‘sad, angry and frustrated’

That leaves Hunt a tall order – especially since the central bank’s intervention in the bond market ended on Friday. The new chancellor has just over two weeks to come up with a package of measures that will convince markets that he has the UK finances under control.

On October 31, he is due to present a medium-term fiscal strategy to outline how the government will begin to reduce the public debt-to-output ratio, while the OBR, the government’s independent budget watchdog, will produce a series of economic forecasts.

“It’s going to be difficult,” Hunt told the BBC.

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