Britain's Prime Minister Liz Truss is fighting for her political survival
A MARTINEZ, HOST:
It has been a rough six weeks for British Prime Minister Liz Truss. Since she came into power last month, her government has reversed course more than once on major economic and tax proposals. Those plans shocked markets and sent investors fleeing. And her brand-new finance minister, Jeremy Hunt, has announced an even greater course reversal. That was in an attempt to reassure those same financial markets. It seems, initially, at least, to have calm the turmoil in the markets. But to make sense of all of this and to explain the potential implications, we're joined by London-based journalist Willem Marx.
Willem, first of all, what has been announced today?
WILLEM MARX: Well, just a bit of context, A - last month, Truss and her first finance minister, Kwasi Kwarteng, unveiled a series of tax proposals and spending plans that they said were designed to kick-start Britain's economy. They were released without independent analysis of their funding details. And investors got worried they'd add up to many more billions in government borrowing and, thus, greater public debt.
The value of the pound fell to a historic low. The costs for the government to borrow money it needed skyrocketed as well. And so what Truss' new finance minister's announced is that the basic rates of income tax will not drop. The plans to cap people's energy prices will no longer stay in place for two years, but only for six months. This effectively means around three-quarters of Truss' planned tax cuts, which were the basis, don't forget, for her entire leadership campaign, are now going to be dropped.
MARTINEZ: OK. Now, did she get at least a vote of confidence from the markets when they opened this morning?
MARX: Well, I'm not sure you can say that she did, but maybe Jeremy Hunt did just three days into his new job. He spent the weekend in reassurance mode doing a series of interviews. Today, he said that it was simply not the right approach to borrow money in order to cut taxes. And that, indeed, has been a plank of the conservative approach over the last 12 years in government.
In terms of the reaction on the markets, the pound did strengthen pretty significantly over the course of the day. The stock market in Britain has risen. The cost of borrowing for the government itself in the form of government bond yields - that has fallen. And that may mean there's less pressure next month for the Bank of England to raise interest rates. Those two metrics really matter - government borrowing costs and interest rates - because they're the main drivers for mortgage costs in Britain, where we have a lot of variable rate mortgages. Those have risen hugely over the past few weeks, and that's been a major reason for discontent in Truss' Conservative Party.
MARTINEZ: So I'm going to squeeze three questions in one, Willem. The Conservative Party - does want to keep Truss as its leader? How's it faring in the polls? And what has all of this done to the U.K.'s image abroad?
MARX: Well, let's start with the lengthy summer campaign to replace Boris Johnson. Truss never once commanded majority support from her own legislators in Parliament. Already, several of them, unsurprisingly, have publicly said she should resign. She's holding meetings all today with ministers and members of Parliament to try and shore up her support. The Conservative Party's polling numbers - they've gone through the floor thanks to her handling of the economy since she took office. The overall gap between conservatives and their opponents, Labour - it's widened to 30% in favor of Labour. With around two years to the next general election, you can imagine that's creating a lot of concern among party legislators because they may be the ones that lose their parliamentary seats.
And then, finally, to that last question - we've heard everyone from the Canadian former Bank of England governor, the German ambassador to London, even President Biden expressing their dismay at Truss' original tax plans. That no doubt has added even greater pressure on her to reverse course, as she now seems to have done. And the question remaining for many in Britain is whether this sudden change of direction will be enough to salvage her own position.
MARTINEZ: All right. That's journalist Willem Marx in London. Thanks a lot.
MARX: Thanks, A. Transcript provided by NPR, Copyright NPR.