Why was Kwasi Kwarteng sacked and Jeremy Hunt appointed as the UK finance minister?

Question

I'm struggling to get from the news headlines why Kwasi Kwarteng was sacked. Wasn't Liz Truss the actual policymaker? Did the fact that they're friends mean that he had more autonomy to make his own decisions? Or is a Chancellor expected to have their own policy? Maybe it was meant as a desparate statement to her party in a hope that they won't dispose her too quickly?

And why Jeremy Hunt was appointed as he didn't do well at all in the leadership contest?

I am interested mainly in facts, but in the absence of those likely explanations are welcome.

Answer 1

It’s not entirely obvious at first glance, as Kwarteng appears to have been sacked for agreeing with the Prime Minister; he set out in his ‘mini budget’ a slate of fiscal policies which Truss herself had promised during her leadership campaign. Reading between the lines, however, we can glean a little insight.

The Government’s Explanation

The explanation - such as it is - was alluded to in Liz Truss’s brief press conference after the sacking/resignation took place.

Today I have asked Jeremy Hunt to become the new Chancellor.

He is one of the most experienced and widely respected government ministers and parliamentarians.

And later on;

I have acted decisively today because my priority is ensuring our country’s economic stability.

It’s not explicitly spelled out, but Kwarteng appears to have been sacked because the deep friendship between him and Truss is seen as having contributed to the mini-budget mess, and the consequent market instability.

Most of the policies announced in the mini-budget had long been telegraphed by Truss in the Conservative Party leadership debates; scrapping the planned corporation tax increases, scrapping the Health and Social care levy, and so on. This, therefore, should have been priced into the gilt and foreign exchange markets before their official announcement by the Chancellor. What hadn’t been proposed was the abolition of the top rate of income tax. This policy in particular, therefore, was seen as having had the largest contribution to the market instability.

Quite apart from the economic effects of the policy, it had such an effect because - as Truss later revealed - it was not even discussed with Cabinet members before being announced by Kwarteng. It showed to markets that Truss & Kwarteng’s friendship was capable of introducing radical policy changes without the relative safeguards of Cabinet scrutiny. Along with a few other MPs, Truss and Kwarteng co-authored the book ‘Britannia Unchained’, which proposes radical free market economic policies, and it seemed that this was the first step in this direction.

It now appears to be hoped that Kwarteng’s replacement with Jeremy Hunt, who endorsed Rishi Sunak in the leadership race after being knocked out himself, will be seen as an olive branch not only to financial markets - as Hunt is seen as more experienced, and as more of a safe pair of hands than Kwarteng - but also to Truss’s party, as Hunt will become only the second Sunak supporter in her Cabinet. During his brief leadership bid, Hunt supported a corporation tax cut beyond even that suggested in the mini-budget, so it's possible Truss regards him as a fellow free market economist without Kwarteng's baggage from the last few weeks.

Answer 2

Q: Why is Kwasi Kwarteng sacked?

The so called mini-budget which he developed together with Liz Truss was poorly received by the public and the market. It was not just unpopular, but also doing real-time damage to the UK economy.

Someone has to take the blame, and that person is not going to be Liz Truss. So she made the very ruthless - but politically correct - decision to pin the accountability on Kwarteng and chopped his head off to salvage her credibility.

She had to do it to defend herself against the opposition in Parliament, but also critics within her own party who are deeply angry at her mismanagement, which is probably contributing to their slump in opinion polls (if a general election happens today Labour would win by a landslide). Some Conservatives are already publicly talking about finding a new leader.

So her message is simple: "It was Kwarteng's idea all along, don't blame me."

Q: Why is Jeremy Hunt appointed as Chancellor?

Jeremy Hunt belongs to the centrist / moderate wing of the Conservative Party, which is sometimes framed as in opposition to... shall we say, the not so moderate wing that Boris Johnson and Liz Truss belongs in.

Appointing Hunt as Chancellor signals that Truss understands she needs to soften her approach. People currently think she is overheating the situation, and doubling-down would appear nothing short of pure insanity. Choosing Hunt as Chancellor shows she wants to be seen as adaptable, responsible, and not-insane.

You are right that Hunt performed poorly in the leadership contest. But keep in mind that he lost the race to Boris Johnson, which tells you a lot about who he is not. Ironically, this probably made him the perfect candidate to replace Kwarteng because he is now basically a pedigree moderate within the Conservative Party.

Answer 3

According to The Guardian, Truss did this as part of "a desperate attempt to restore her crumbling political authority," with the appointment of Hunt "an apparent move by Truss to reach out more broadly to Conservative MPs":

Hunt’s appointment appears to be a response to criticism from Tory MPs that Truss’s initial cabinet was chosen for loyalty rather than competence and experience, being packed almost entirely by those who supported her in the leadership race....

Earlier, sources had said the prime minister wanted Kwarteng to “carry the can” over her climbdown as she sought to calm the markets and the nerves of jittery Tory MPs....

The prime minister’s own position is seemingly in such peril, with Tory MPs actively plotting her downfall, that she concluded sacking the chancellor was essential for her political survival.

That said, Kwarteng may well be a scapegoat:

Whitehall insiders said the pair had held different views on how far the government should go in reversing key elements of its plan to steady the markets and placate anxious Conservative MPs.

They said Kwarteng had been pushing for a full retreat on the corporation tax policy, raising it from the current 19% rate to the planned 25%, while the prime minister had wanted to go for just a fraction of the rise.

One Treasury insider said Kwarteng had all along been “more prepared to U-turn” than Truss on corporation tax and previously the 45p rate, despite him largely getting the blame for the policies.

However, Downing Street insiders said Truss was expected to fully retreat on the plan.

Answer 4

Kwasi Kwarteng was sacked for the simple reason that Liz Truss needed a fall guy to pin the blame on for the disastrous and nonsensical "budget" that the two of them cooked up together. The fact that Kwarteng is known to be a close friend of hers made his ousting even more necessary - to demonstrate that she is taking sufficient measures to undo the mess she has made.

Jeremy Hunt was brought in to replace Kwarteng because while the latter has only three years of government experience in somewhat minor roles, Hunt has served in various high-level posts since 2010, and is perceived as a "safe pair of hands" who's unlikely to make the same sort of drastic changes and mistakes that Kwarteng has.

In short, replacing Kwarteng with Hunt is an act of desperation by a Prime Minister who has demonstrated herself to be incompetent in her role, and is now desperately trying to convince both the markets and the rest of the Tory party that she is not. Whether she succeeds remains to be seen.

Answer 5

It is more of signaling to stabilise the market than a political blame game/scapegoat that many thought so. In fact, firing Kwasi would not absolve Liz Truss of her "mistakes" and instead make her look "weak" or "betrayer" in eyes of voters/parties. Nevertheless, she had to do it to eliminate lingering concerns in the gilt market of any possible future "u-turn" on the recent "u-turn" by Kwarteng, a staunch supporter of her initial policies. Also, she installed a competitor, Jeremy Hunt, who might be seen by market as a more convincing "independent" check against any future policies. As many main-stream media / analysts had already said, she has to do more than simply u-turning the policies, which include increasing tax rates higher than before, to reverse the impact. Firing Kwarteng is an attempt to minimise the extent of tax rate increases and to maximise market confidence. Just like speeches from FOMC, any verbal cues do significant "magical" jolts to the market in the short-term. Why not right?

The act of scapegoating is meaningless when anyone/public can easily assume it is "scapegoating", which is why Liz Truss wouldn't have done it just to scapegoat Kwarteng. She must be real stupid to do it with the intention of scapegoating for political reasons.