LDN - Business

British PM Truss says sorry, faces deep spending cuts to balance books

[October 18, 2022] By Sachin Ravikumar and Elizabeth Piper

LONDON (Reuters) -Prime Minister Liz Truss apologised for threatening Britain's economic stability after she was forced to scrap her vast tax-cutting plans and embark on a programme of "eye-watering" public spending cuts instead.

After weeks of blaming the markets and "global headwinds" for investors dumping the pound and government bonds, Truss said she was sorry for going "too far and too fast" with her radical economic plan to snap Britain out of years of stagnant growth.

Markets, which plunged after her Sept. 23 "mini-budget", are still under strain even after Truss's finance minister Jeremy Hunt tore up her plans on Monday, and she is now fighting to survive, just six weeks after she became prime minister.

It was not clear whether Truss's apology would quell a growing rebellion in her ruling Conservative Party, with a handful of lawmakers urging her to quit. Dozens fear they will lose their jobs at the next election.

Even one of her ministers said she could not afford to make any more mistakes - something that could be difficult when her government looks for deep savings which could deepen an expected recession. Already Hunt has refused to guarantee the budgets of departments such as health and defence.

A new YouGov opinion poll suggested even those Conservative Party members who backed her for prime minister were having second thoughts. It showed more than half of those members polled said she should resign, while a third wanted her predecessor, Boris Johnson, to replace her.

"I do want to accept responsibility and say sorry for the mistakes that have been made," Truss told the BBC late on Monday.

"I wanted to act to help people with their energy bills, to deal with the issue of high taxes, but we went too far and too fast." She added she was "sticking around" and that she would lead the Conservatives into the next election due in about two years time, although the statement was accompanied by a laugh.

Truss watched silently in parliament on Monday as Hunt demolished the economic plan she proposed less than a month ago, and which triggered a bond market rout so deep that the Bank of England had to act to prevent pension funds from collapsing.

'THE GHOST PM'

For some in the party, the sight of a prime minister humbled in parliament provided little confidence she could fight on.

The Daily Mail, which had hailed Truss's plan, ran a front page with her leaving parliament on Monday underneath the headline "In office but not in power", while the also supportive Sun newspaper called her "The Ghost PM".

[to top of second column]

British Prime Minister Liz Truss looks on as she speaks to the media at the Empire State building in New York, U.S., September 20, 2022. REUTERS/Toby Melville/Pool/File Photo

James Heappey, a minister for the armed forces, said Truss, his boss, could not afford to make any more mistakes.

Truss held a meeting of her cabinet team on Tuesday and was due to speak later to her lawmakers, who have been urged by some close to government to hold off from any move to oust her before the government presents its full fiscal plan on Oct. 31.

Truss was elected by Conservative party members, not the broader electorate, on a promise to slash taxes and regulation to fire up the economy in a policy dubbed by critics as a return to 1980s Thatcherite-style "trickle-down" economics.

But markets reacted so dramatically that borrowing costs surged, lenders pulled mortgage offers and pension funds fell into a tailspin.

The Bank of England said a report in the Financial Times about a new delay to the start of its sales of government bonds was inaccurate. The FT said it had learned that top officials were likely to decide a delay was needed after judging the gilts market to be "very distressed" in recent weeks.

Ryanair boss Michael O'Leary described Britain's economic situation as a "car crash" which he blamed on the country's decision to vote to leave the European Union in 2016.

SPENDING SQUEEZE

With Britain's economic reputation shattered, Hunt may now have to go further in finding public spending cuts than the government would have done had Truss not unleashed her economic plan at a time of surging inflation.

Torsten Bell, the head of the Resolution Foundation, a think tank, told BBC radio the government may need to find public spending cuts of around 30 billion pounds ($34 billion) - a politically very difficult task after successive Conservative governments cut departmental budgets over the last 10 years.

One area of spending already to go is Truss's vast two-year energy support package that was expected to cost well over 100 billion pounds.

Hunt has said support to households and businesses will now last until April, before it is reviewed, prompting analysts to say families could face energy bills of 5,000 pounds next year.

On Monday Hunt refused to guarantee previous policies, such as a commitment to increase pensions in line with inflation.

($1 = 0.8807 pounds)

(Writing by Kate Holton and Elizabeth Piper; Additional reporting by William James, Andrew MacAskill, Kylie MacLellan and Paul Sandle; Editing by Raissa Kasolowsky and Gareth Jones)

Back to top