The key events that led to the downfall of Prime Minister Liz Truss
In a short sub two-minute statement outside number 10 Downing Street, Truss said when she came into office it was a time of great economic and international instability where families and businesses were worried about how to pay their bills.
She said Putin’s illegal war in Ukraine threatens the security of the continent, adding that our country “has been held back too long by low economic growth”.
Her speech read: “I was elected by the Conservative Party with a mandate to change this. We delivered on energy bills and cutting National Insurance.
“And we set out a vision for a low tax, high growth economy that would take advantage of the freedoms of Brexit.
“I recognise though, given the situation, I cannot deliver the mandate on which I was elected by the Conservative Party.
“I have therefore spoken to The Majesty the King to notify him that I am resigning as leader of the Conservative Party.
“This morning I met the chairman of the 1922 committee, Sir Graham Brady. We’ve agreed there will be a leadership election to be completed within the next week.
“This will ensure we remain on a path to deliver our fiscal plans and maintain our country’s economic stability and national security.
“I will remain as Prime Minister until a successor has been chosen. Thank you.”
‘Markets don’t like uncertainty’
Danni Hewson, AJ Bell financial analyst, said: “To use a phrase that has no doubt been exhausted in the past few weeks, markets don’t like uncertainty. And losing another Prime Minister in the midst of a cost-of-living crisis is far from ideal. But Liz Truss’ credibility with markets was shattered when her former chancellor unveiled the mini Budget which effectively lit the touch paper on an explosive period for politics and demonstrated the importance of taking markets with you when it comes to fiscal policy.
“Sterling received a boost against the dollar on the speculation that resignation was imminent and the yield on 30-year gilts was nudged down, but the reality that number 10 is once again in need of a new inhabitant has led to minute by minute fluctuations.
“There are big questions to be answered and they need to be answered quickly. The Conservative Party is promising a quick appointment within days, crucially ahead of the fiscal event scheduled for Halloween.
“And for markets that’s really the key issue – that independent economic health check needs to be published and policy needs to stand. There can be no more vacillating, dithering or U-turns.”
Hewson added: “Volatility which has been a hallmark of global markets this year is most definitely here to stay in UK markets, at least for now. Time is short and credibility is on the line, but it is ordinary people’s finances that should be the priority.”
According to Joshua Raymond, director at online investment platform XTB, the pound has rallied against the US dollar and euro on the back of the Truss resignation news, with the GBP rising around 1%.
The long dated UK gilt yields have also fallen, with the benchmark 10 year yield falling around 0.2% to around 3.8%.
“That in itself is a strong message. Normally markets hate market uncertainty and the removal of a sitting Prime Minister would be taken negatively. The fact its been seen as positive tells you all you need to know about the market’s attitude towards the Truss premiership.
“The markets have now seen off a complete change in leadership of both No 10 and the UK treasury in just a matter of days. That is remarkable. Investor eyes now switch firmly to who takes over as the new PM and the fact it will only take a week is helpful to remove longer term uncertainty. The focus now shifts on who takes over.”
Timeline of Truss’ leadership highs and lows
5 September: Elected leader of the Conservative Party and Prime Minister after gaining 57.4% of the vote, compared to Rishi Sunak’s 42.6%.
7 September: First statement in Downing Street as new PM, where she said: “I will deal hands-on with the energy crisis caused by Putin’s war. I will take action this week to deal with energy bills and to secure our future energy supply.”
8 September: Sets out Energy Price Guarantee, curbing average energy bills to £2,500 for the next two winters. The move would see billpayers save around £1,000 on their energy against the Ofgem energy price cap which was expected to rise 80% from £1,971 to £3,549 on 1 October 2022. This was also the day the Queen passed away.
13 September: Government confirms the mini Budget fiscal event would take place in September, following the period of mourning for the Queen.
15 September: New Chancellor Kwasi Kwarteng reportedly planning to scrap the cap on bankers’ bonuses.
16 September: Pound crashes to a near 40-year low against the dollar following the dollar’s strength along with the Fed’s aggressive action to control inflation.
20 September: Speculation mounts as to the contents of the mini Budget, including rumours of a reversal in the recent National Insurance rise, a freeze on corporation tax, and the controversial move to scrap the cap on bankers’ bonuses. Other suggestions included a VAT cut, inheritance tax shake-up and scrapping the Lifetime ISA penalty.
21 September: More mini Budget leaks as reports suggest Kwarteng will announce a stamp duty cut with experts suggesting the move could push up house prices further.
22 September: Bank of England raises the base rate from 1.75% to 2.25%, with homeowners braced for big mortgage bill hikes.
22 September: Kwarteng confirms the 1.25 percentage point National Insurance increase will be reversed in November. The NI increase from 12% to 13.25% came into effect in April 2022 to fund social care in the UK. It was originally announced by previous PM, Boris Johnson.
23 September: Kwarteng’s much anticipated yet ill-fated mini Budget (growth plan) announced. Alcohol duty freeze, bankers’ bonus cap revoked, corporation and dividend tax rise axed, income tax cut, additional rate abolished. IR35 reforms revoked, pledge on strike action, NI increase overturned as expected, Universal Credit sanctions strengthened and stamp duty cut announced. However, these were all unfunded; no costings were provided by the government on these stealth tax cuts estimated at £45bn.
26 September: Pound crashes to new low as tax cuts fuel investor panic. Bank of England governor Andrew Bailey said the Bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets.
26 & 27 September: Mortgage lenders start pulling their deals from the market, including Halifax, Virgin Money, Skipton and Leeds Building Society to name a few.
The IMF issued a statement saying it does not recommend large and untargeted fiscal packages, adding it is important that fiscal policy does not work at cross purposes to monetary policy. It also said the medium-term fiscal plan on 23 November should consider ways to provide support that is more targeted and should re-evaluate tax measures that benefit high income earners.
Meanwhile, rating agency Moody’s said large unfunded tax cuts were credit negative.
28 September: Mortgage lenders pull a record 935 deals from the market overnight. Moneyfacts data revealed product choice fell from 3,596 on 27 September to 2,661 on 28 September. Rates also climb daily from 4.74% on a two-year fix on 23 September, the day of the mini Budget.
Bank of England intervenes in bond market to stop a Northern Rock style run on pension funds as gilt yields soar.
30 September: Average two-year mortgage rates breach 5%, jumping from 4.87% overnight to 5.17%.
1 October: Energy Price Guarantee comes into effect.
3 October: U-turn on scrapping the 45p (additional rate) of income tax planned for April 2023. Kwarteng said the government “gets it” and “have listened”, adding that this policy had “become a distraction” from its mission to tackle the country’s challenges.
5 & 6 October: Average mortgage rates for a two-year fix breach 6%, the first time since November 2008 according to Moneyfacts (6.31%). It rose from 5.97% to 6.07%. Meanwhile, average five-year fixed deals also breach 6%, rising from 5.97% to 6.02% overnight to 6 October. Meanwhile annuity rates leap 50% since the start of the year. But pension savers in de-risking pension strategies see 40% wiped from their investments off the back of the bond bloodbath.
7 October: The Treasury considers extending the mortgage guarantee scheme to support first-time buyers amid the market turbulence.
10 October: Bank of England steps up bond support to calm pension fears by doubling its daily limit from £5bn to £10bn. Meanwhile Kwarteng confirms the debt plan and OBR forecast will indeed be brought forward to 31 October.
11 October: Bank of England further supports bond buying programme to avoid a ‘fire sale’ risk as it widens the scope to include index-linked gilts in a bid to restore “orderly market conditions”.
12 October: Round two of property fund suspensions as Columbia Threadneedle blocks trading.
13 October: Government looks at a number of ways to reduce its deficit, with reports suggesting it could uprate working-age benefits in line with earnings rather than prices, such as Universal Credit, next year. This could save the government an estimated £3bn by 2026/27 according to leading think tank Resolution Foundation.
14 October: Kwarteng sacked as Chancellor and was swiftly replaced by Jeremy Hunt. Hunt announced U-turn on corporation tax, confirming the planned rise from 19% to 25% will go ahead. Bank of England ends its bond buying programme as planned, despite suggestions it could be extended.
17 October: New Chancellor Hunt announces a scaled back Energy Price Guarantee meaning it will be reviewed after just six months (April 2023) rather than the original two-year plan. He also dumps nearly all of his predecessor’s tax cuts, a major U-turn on several policies as part of Truss’ growth plan. It has the effect of calming the markets.
18 October: The double digit state pension rise from April 2023 is cast in doubt given the government’s big fiscal black hole. Hunt refused to commit to the state pension triple lock which guarantees the basic state pension will rise by the higher of average earnings, inflation or 2.5%. Given inflation was expected at 10%, this would be the biggest ever boost to retirees’ income.
19 October: Inflation estimated at 10.1% for September. Truss confirms her commitment to protecting the pension triple lock, meaning pensioners set for 10.1% increase to retirement income from April 2023.
20 October: Government brings forward bill to make sure minimum transport services will run during strike action to ensure passengers and businesses aren’t “held to ransom”. The bill is slammed by trade unions. It formed part of Truss’ commitment to introduce the legislation within her first 30 parliamentary sitting days.