Liz Truss Resigned as UK Prime Minister

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Liz Truss Resigned as UK PM

Liz Truss announced her resignation after 45 days which makes the shortest tenure of any British Prime Minister. She is forced to resign as leader of Conservative party after her economic program shattered the UK’s reputation for financial stability. The resignation has resurfaced the volatility of British politics since the 2016 vote to leave the European Union.

Now, after her resignation nominations for conservative party members who are planning to contest for UK Prime Minister has begun. The Conservative party will elect a new leader by October 28. The threshold of 100 MPs support is set for the final shortlist. This new development has once again raised Rishi Sunak, the former finance Minister as a prospect candidate for the Prime Minister. In the last round of voting he gathered support of 137 MPs.

Why Liz Truss Resigned?

Unlike Boris Johnson, it is not the personal conduct of Liz Truss that has come into question, there was public anger regarding the economic policies her government introduced. Firstly they introduced stark tax cuts, followed by an immediate U-turn and rollback. Also, Truss was solely chosen by Conservative party members. Her general popularity did not have strong backing. It is widely discussed that five major reasons forced her to resign. They are discussed below.

The mini-Budget: After assuming the leadership, her government presented a mini-Budget that essentially ramped up spending while also cutting tax revenues. Later, decision to U-turn from tax cuts caused public anger.
Market reaction: The mini-Budget spooked market entities as a sharp rise in borrowings at a time when the UK’s growth prospects have been doubtful, implied that the government may not be able to repay the debts it accumulated. It created a panic in the market, investors started selling all possible UK assets. This led to fall in pound sterling to historic lows against the US dollar; worsening the imported inflation. Similarly, investors, unwilling to lend money to the UK government, started selling government bonds.
Crisis in pension funds and mortgage rates: Due to fall in price of government bonds (and a rise in gilt yields) crisis in emerged in the pension funds in the UK which created massive panic and genuine doubts over the viability of the pension funds. A sharp rise in market interest rates posed risk to those with home loans who had to either refinance or risk losing their homes.
U-turn upon U-turn: Due to unfavourable market reaction, the PM reluctantly started announcing U-turns. The biggest blow came when she sacked her chancellor just for voicing her own economic plans.
Actions of new chancellor: The newly appointed chancellor Jeremy Hunt soon after taking the charge, scrap “almost all” the tax cuts announced last month and signaled public spending cuts are on the way, in a bid to soothe turbulent financial markets. The reversal of most of the economic package announced by the government just weeks ago, served as the last big blow contributing to her resignation.