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

“Spending will not go up as much as people want and there’ll be more efficiencies to find,” Hunt said Saturday in a Sky News interview. “We won’t have the speed of tax cuts we’re hoping for and some taxes will have to go up — that’s the reality of the very challenging situation we face.”

Hunt replaced Kwasi Kwarteng in charge of the UK’s purse strings on a dramatic Friday, which saw Truss fire her longstanding ally and make another major U-turn on her economic strategy in a desperate bid to keep her job.

The new chancellor made clear that while he agrees with Truss’s argument about the need for growth, he disagrees with how she and Kwarteng went about it. Using borrowing to fund tax cuts “doesn’t work,” he told BBC Radio. Other “mistakes” included trying to cut taxes for the UK’s highest earners, he told Sky News, a plan they abandoned after a ferocious political backlash.

Challenges for Jeremy Hunt

The new chancellor faces a huge challenge to calm markets. While Truss said canceling her plan to freeze corporation tax will raise £18 billion ($20 billion) a year, Bloomberg Economics estimates about £24 billion more savings or revenue raising is needed to put debt back on a sustainable track.

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

Hunt said all government departments would have to find “efficiencies,” which when pressed, he acknowledged could, in fact, mean “cuts.” He denied there would be a return to austerity on the level imposed by the Conservative-led coalition government in the early 2010s.

His comments potentially set Truss up for another humiliating U-turn, after she tried to assure her restless MPs in Parliament on Wednesday that there would “absolutely” not be spending cuts. Hunt also declined to commit to Truss’s pledge to raise defense spending to 3% of economic output, though he added he would make no commitments until he’s seen the Treasury numbers. 

Turbulent Markets

Truss’s double maneuver on Friday of sacking Kwarteng and saying corporation tax will now rise to 25% from 19% next year as had been previously planned by her predecessor, Boris Johnson, failed to steady the ship, with the pound and gilts both falling after she spoke.

High Priests of Trussonomics ‘Sad, Angry and Frustrated’

That leaves Hunt with a major job to do — especially as 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 the markets that he has a handle on the UK finances. 

On Oct. 31 he’s due to deliver a medium-term fiscal strategy to spell out how the government will start to bring down the national debt as a proportion of output, and at the same time, the OBR, the government’s independent fiscal watchdog, will produce a set of economic forecasts.

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