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Kwarteng flies back for mini-budget crisis talks with Truss

The Chancellor cut short his visit to the IMF in Washington amid speculation over a U-turn on his £43 billion tax giveaway.

14 October 2022

Kwasi Kwarteng is flying back to London for crisis talks with Liz Truss amid turmoil in the Tory Party and intense speculation he will have to dismantle key elements of his controversial mini-budget.

The Chancellor cut short his visit to the annual meeting of the International Monetary Fund (IMF) in Washington DC as Conservative MPs questioned whether he and the Prime Minister can survive the coming days.

After days of chaos, there was greater calm on the financial markets following reports that Mr Kwarteng is preparing to abandon parts of his £43 billion tax giveaway.

However, the situation remains precarious with the emergency support package put in place by the Bank of England to protect pension funds from collapse due to end on Friday.

At Westminster, there were reports of fevered plotting among Tory MPs amid suggestions that Ms Truss’s two main rivals for the Tory leadership over the summer – Rishi Sunak and Penny Mordaunt – could be installed at the head of a new administration.

Before he left the United States, Mr Kwarteng initially insisted he stood by his economic growth plan and would be setting out how he intended to get the public finances back on track in a statement on October 31 as planned.

However, few MPs believe he can afford to wait that long, and in a later interview with The Daily Telegraph he said only “let’s see” when asked if he could ditch his promise on corporation tax.

The commitment to scrap the planned increase in the levy on corporate profits from 19% to 25% is widely seen as likely to be the first element to go if the expected U-turn goes ahead.

However it is unclear whether that would be enough to settle the markets, which have already “priced in” significant changes.

The senior Conservative MP Mel Stride, who chairs the Commons Treasury Committee, said it was essential that the Government acted decisively if it was to restore confidence.

“The danger here is that they decide they are going to nibble at the edges of this and don’t think that will cut it,” he told the BBC.

The International Monetary Fund and World Bank Group meetings were held in Washington DC this week
The International Monetary Fund and World Bank Group meetings were held in Washington DC this week (Patrick Semansky/AP)

“You could end up in that circumstance in the worst of worlds – that you’ve U-turned but it doesn’t settle the markets.”

A Treasury spokesman said: “After completing a successful series of meetings at the IMF, the Chancellor is returning to London today to continue work at pace on the medium-term fiscal plan.”

Trade Minister Greg Hands, meanwhile, refused to rule out possible changes ahead of the October 31 statement, telling Sky News the Government “will make responses as appropriate as events happen”.

Mr Hands brushed off suggestions Ms Truss could be forced to sacrifice Mr Kwarteng to preserve her own job, insisting his position was “totally safe”.

“I know the Prime Minister has got total confidence in Kwasi Kwarteng,” he said, adding that the Chancellor was “an incredibly capable person, a very, very bright person who makes good judgment calls”.

Mr Hands, who backed Mr Sunak in the leadership election, also dismissed suggestions that the former chancellor could be installed at the head of a new government on a joint ticket with Ms Mordaunt.

“I don’t recognise that story at all,” he said.

On the markets, Government bonds and the pound have steadied at the start of London trading on Friday as the Bank of England’s bond-buying programme comes to a close.

Yields on UK 30-year gilts fell back by 1.6% to 4.47%, while 10-year gilt yields moved 1.8% lower to 4.11%.

Meanwhile, the pound was 0.3% higher at 1.127 against the US dollar as trading sentiment improved.

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