British pound slide: Truss admits mistakes

Status: 02.10.2022 1:02 p.m

British Prime Minister Truss has defended her controversial fiscal policy while acknowledging mistakes. She assigned sole responsibility for lowering the top tax rate to Finance Minister Kwarteng.

After the pound’s slide, new Prime Minister Liz Truss is trying to limit the damage. “I see that we should have prepared better,” Truss told the BBC.

However, she stands by the announced package. “And I stand by the fact that we announced it quickly because we had to act.” Her government has a “clear plan” to deal with the energy crisis and inflation and to restart the economy, the head of government affirmed.

Truss supports tax cut plans

The project is also controversial in the conservative party of Truss. The main issue here is the planned abolition of the highest income tax rate of 45 percent. Some conservatives worry about being seen as the party that cuts taxes on the wealthiest while doing little for the weakest.

Truss said she supports eliminating the top tax rate. However, the decision was made by Finance Minister Kwasi Kwarteng. Truss left open the question of whether the elimination of some taxes would have to be paid for with cuts in public services.

Higher national debt controversial

Your “growth plan” presented about a week ago has been criticized by investors and economists because it envisages additional spending in the billions – but hardly any details on how this is to be financed in the short term. According to experts, the measures could cost the equivalent of almost 230 billion euros.

Finance Minister Kwarteng spoke again on Saturday, but left details open. In an article for the Telegraph newspaper, he merely confirmed that he would present a “credible plan” for debt reduction in November. There will also be a commitment to bringing public spending under control. It is clear that the measures announced were not met with approval everywhere. But you had no choice.

Worst economic crisis in decades

Most recently, the rating agency S&P followed the skeptical view of other institutions and lowered the outlook for British government debt from “stable” to “negative”. The agency Moody’s and the International Monetary Fund (IMF) also have concerns. A worse rating can mean that higher interest rates have to be paid to take on new debt – which would restrict the government’s room for manoeuvre.

It is unclear whether the plans will cause the debt to rise further or whether the measures will pay for themselves, as the government hopes. On the foreign exchange market, the pound fell to its lowest level in 37 years against the dollar last week. The bond market also went downhill. Ultimately, the British central bank intervened to mitigate the upheaval.

Britain is suffering from the worst economic crisis in decades and high inflation. Electricity and gas prices for consumers will probably rise by 80 percent in October, and companies are on the brink of collapse due to high energy costs.

source site