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Britain's Prime Minister Liz Truss looks down during a press conference in the Downing Street Briefing Room in central London on Oct. 14, 2022, following the sacking of the finance minister in response to a budget that sparked markets chaos.DANIEL LEAL/AFP/Getty Images

British Prime Minister Liz Truss has sacked her finance minister and dropped a key part of her government’s tax-cutting plan in an effort to salvage her teetering leadership.

Ms. Truss announced Friday that she had replaced Kwasi Kwarteng as Chancellor of the Exchequer and would not fulfill a pledge to scrap an increase in the corporate tax rate; instead, the rate will climb from 19 per cent to 25 per cent next April, as previously announced.

Jeremy Hunt, a former senior cabinet minister, has taken over as chancellor.

The moves are humiliating setbacks for Ms. Truss and may not be enough to save her from being forced to resign. In just five weeks as Prime Minister, she has reversed course twice on major policy announcements and dropped the central part of her economic growth plan.

Her government’s mini-budget, which included deep tax cuts funded by increased borrowing, has also caused havoc in financial markets and a spike in mortgage rates, driving public support for the Conservatives to 30-year lows.

On Friday Ms. Truss said she remained focused on her “mission,” but acknowledged that there had been some instability.

“It is clear that parts of our mini-budget went further and faster than markets were expecting,” she said during a short news conference. “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.”

She insisted that she remained committed to a “low-tax, high-wage, high-growth economy.”

“I am determined to deliver on what I set out when I campaigned to be the party leader. We need to have a high-growth economy but we have to recognize that we are facing very difficult issues as a country,” she said.

But she could not explain why she should remain Prime Minister given that she has now abandoned her core campaign pledge and dismissed Mr. Kwarteng, who was simply carrying out her agenda. She would only reiterate that she remained “absolutely determined” to implement what she promised during the leadership race.

Throughout the summer, as she campaigned to replace Boris Johnson as party leader and prime minister, Ms. Truss railed against higher taxes and took aim at her rival, former Chancellor Rishi Sunak, for making the decision to increase the corporate tax rate. She said it would stifle investment and stall economic growth and repeatedly promised to cancel the increase. She also vowed to cut the top tax rate for individuals from 45 per cent to 40 per cent, arguing that it would stimulate investment.

After she won the leadership contest on Sept. 5, she appointed Mr. Kwarteng because he shared her free enterprise philosophy. He tabled a mini-budget on Sept. 23 that included £45-billion worth of tax cuts but no plan outlining how the measures would be financed beyond increased borrowing.

That uncertainty roiled financial markets and sent government bond prices falling, which in turn drove up mortgage rates for millions of homebuyers. The turbulence got so bad that the Bank of England had to intervene to help pension funds facing hefty margin calls to cover falling bond prices.

Last week Ms. Truss bowed to public pressure and dropped the plan to reduce the top tax rate. That decision came only after she’d been accused of helping wealthy Britons while the rest of the country struggled with rising inflation. But it wasn’t enough to quell the growing discontentment with her leadership.

Conservative MPs have openly questioned her future, and there have been reports this week that some MPs have been looking for ways to oust her. Her performance Friday did little to solidify her position.

“Hard to understand why the Prime Minister has sacked her Chancellor – a good man – for promoting the policies upon which she was elected,” Tory MP Roger Gale said in a tweet.

Her remarks also failed to calm financial markets. Bond prices fell after she spoke, and the pound was down about 2 per cent on the day to US$1.11.

The mini-budget remains a source of uncertainty. Mr. Kwarteng had been expected to outline how the government would pay for the measures on Oct. 31. That will now be left to Mr. Hunt.

Economists say increasing corporate taxes and maintaining the top tax rate will raise about £20-billion per year. But the announcements were “unlikely to be enough” to plug the fiscal gap, said Paul Johnson, the director of the Institute for Fiscal Studies. “More than £20-billion of tax cuts are still in place.”

“As U-turns go it’s a doozy,” added Danni Hewson, an analyst at London brokerage AJ Bell. “The freeze in corporation tax wasn’t something most households were talking about around the dinner table, but it was the jewel in the crown of the new Prime Minister’s plans to supercharge U.K. economic growth.”

Opposition parties were quick to call for Ms. Truss to either step down or call an election. “Liz Truss’s reckless approach has crashed the economy, causing mortgages to skyrocket, and has undermined Britain’s standing on the world stage,” Labour Leader Keir Starmer said Friday. “We need a change in government.”

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