UK's Truss U-turns on tax, ditches finance minister

STORY: UK Prime Minister Liz Truss ditched her finance minister and made a colossal U-turn on unfunded tax cuts on Friday (October 14).

It marked a bid to stay in power and survive the market chaos and political turmoil gripping the country.

Chancellor Kwasi Kwarteng said he had resigned at Truss's request after being forced to rush back to London overnight from IMF meetings in Washington.

Speaking to a news conference, Truss, who has been in power for little over a month, said she would now allow a key business levy to rise from next year.

''But it is clear that parts of our mini-budget went further and faster than markets were expecting. So the way we are delivering our mission right now has to change. We need to act now to reassure the markets of our fiscal discipline. I have therefore decided to keep the increase in corporation tax that was planned by the previous government. This will raise 18 billion pounds per year."

Truss appointed former foreign and health secretary Jeremy Hunt to replace Kwarteng.

Kwarteng is the country's shortest serving chancellor since 1970, and his successor will be the fourth finance minister in as many months in Britain.

Truss's own position is also in jeopardy.

She won the Conservative Party leadership last month by promising massive tax cuts and deregulation to try to shock the economy out of years of stagnant growth.

But the response from markets was so ferocious that the Bank of England had to intervene to prevent pension funds from being caught up in the chaos, and borrowing and mortgage costs surged.

The pound slid against the dollar after Truss spoke Friday, trading 1.2% lower, and two-year British government bonds turned negative.

Kwarteng and Truss had been under mounting pressure to reverse their "mini budget," after polls showed support for the Conservative Party had collapsed.

Many colleagues have been seeking ways to force them out of office.

Truss now runs the risk of bringing the government down if she cannot find a palatable package of public spending cuts and tax rises that can appease investors - and get through any parliamentary vote in the House of Commons.