The former Chancellor of the Exchequer, responsible for the notorious “mini-budget,” will not seek re-election in the next general election, scheduled for no later than January 28, 2025.
In an announcement published to X, on Tuesday, 6th February 2024, the Member of Parliament for Spelthorne, a constituency in Surrey, southeast England, stated that he had “informed [his] Association Chair of [his] decision not to stand at the next General Election.”
Before his election in 2010, Mr Kwarteng had worked as a financial analyst in the City of London, as well as a stint as a columnist for The Telegraph, a right-wing newspaper that supported former Prime Minister Liz Truss’ premiership campaign.
Since his time in parliament, he has served in positions including Secretary of State for Business, Energy and Industrial Strategy, Minister for Energy, Clean Growth and Climate Change, and Parliamentary Under Secretary of State in the Department for Exiting the European Union. He then went on to become the first black Chancellor in British history upon his appointment in 2022.
It was during this time that he became perhaps best known for his role in the “mini-budget”. The fiscal statement, formerly known as “The Growth Plan”, led to his sacking after only 38 days in office, the second shortest of any Chancellor.
The “mini-budget,” published in September 2022, announced £45bn in unfunded tax cuts that saw widespread disruption in financial markets. The measures included scrapping planned increases of corporation tax from 19% to 25%, abolishing the 45% rate of income tax on highest earners, and rolling back on National Insurance contributions.
In the aftermath of its publication, the British Pound fell to an all-time low against the US Dollar as well as interest rate increases in government bond markets (a form of debt governments can sell to raise capital for public spending requirements), leading to borrowing and mortgage cost increases.
The market disruption caused by the fiscal announcement was so great that it prompted intervention by the Bank of England to stabilise gilt markets, and a rare condemnation by the IMF. The intergovernmental organisation stated that they were “closely monitoring recent developments in the UK.” Serious concerns were levelled after the Chancellor pushed forward without Office for Budget Responsibility (OBR) oversight.
Created in 2010, the OBR is an independent organisation responsible for “analysis of the UK’s public finances” by checking the government fiscal plans and forecasting the economic outlook. As the Treasury does not produce its own forecasts, the OBR is considered an important independent body where investors can find reliable information regarding government spending plans. The absence of this can be concerning to markets.
Widely covered at the time, large pension funds were particularly vulnerable to these market changes as major investors in this type of government bonds and UK debt. They had increased their investments by borrowing from large banks. However, declining prices meant banks required these firms to provide cash (collateral) to maintain their loans, known as a margin call, as their value declined past a certain point. Pension funds were thereby required to sell assets, including these bonds, to provide the collateral. This pushed the prices of these bonds further down and increased yields which created a cycle that could have led to a liquidity crisis in these institutions, essentially running out of money.
The Bank of England was ultimately forced to step in by announcing it would begin buying £65bn in long-dated UK government bonds, known as gilts, over 13 days. This was due to the collapse in prices after traders began to sell when uncertainty in the market of the unfunded tax cuts announced caused yields to rise to over 5% on 30-year gilts, a usually stable investment. Gilts are an indication of long-term government borrowing as they provide a base rate general debt interest rates are calculated on issued bonds and public debts. At the end of December 2022, according to the Office for National Statistics, the UK government held a total gross debt of 100.4% of GDP. The central bank had previously announced the day before the fiscal event that it would begin selling some of its government bonds, but stated that these purchases were “to restore orderly market conditions.” After announcing the intervention, yields declined to below 4% almost overnight.
His removal on 14th October 2022, by Liz Truss, left him as the second shortest-serving Chancellor in British history. Before stepping down from the position he was called back to London prematurely while attending an International Monetary Fund meeting in Washington D.C., in response to the biggest tax cuts since 1972.
The parliamentarian, who previously read classics and history at Trinity College, Cambridge, while earning a PhD in economic history from the same university, said of his ousting in a letter posted to X that “[Liz Truss had…] asked me to stand aside as your Chancellor. I have accepted.” The former Chancellor went on to repeatedly back Mrs Truss’ economic policy, dubbed ‘Trussonomics,’ by saying, “your vision of optimism, growth and change was right,” and that “it is important now as we move forward to emphasise your government’s commitment to fiscal discipline.”
After Kwasi Kwarteng agreed to “stand aside,” the new and current Chancellor, Jeremy Hunt, quickly announced the immediate reversal of nearly all policies, and tax cuts laid out in Mr. Kwarteng’s signature statement. The axing came alongside most of the policies Liz Truss had based her Conservative leadership campaign on, after the resignation of former UK Prime Minister Boris Johnson. During the speech to the House of Commons after his promotion to Chancellor in late October 2022, Mr Hunt said there needed to be “difficult decisions” made in order to repair trust “in our national finances” while “prioritising the needs of the most vulnerable”.
It is unclear exactly what the former Chancellor will do, now that he has announced his departure from politics at the next general election. However, based on figures released in the Register of Members Interests, he has declared payments in the past year related to media appearances on GB News, described by The Guardian as a “right-leaning” media outlet, and Rupert Murdoch’s TalkTV. He also declared non-parliamentary interests from interviews and articles with The Spectator and The Daily Telegraph.
Mr Kwarteng has also earned significant income from consultancy with the green technology and energy firm Fortescue Future Industries paying him £35,000 and £8,500 for presenting a keynote speech at the Annual Institutional Investor UK & Ireland summit in July 2023.
As of the 14th February 2024, the parliamentarian is one of 55 Conservative MPs who will be standing down at the next General Election, according to figures released by the House of Commons Library.
Photo Credit: Getty Images, BBC
Editor: Vidhi
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