Truss vows action on energy crisis after becoming Britain’s new prime minister

LONDON (Reuters) – Liz Truss took office as Britain’s prime minister on Tuesday, pledging immediate action to tackle one of the toughest challenges facing a new leader in post-war history led by soaring energy bills and a looming recession. and industrial conflict.

Truss, the fourth Conservative prime minister in six years, flew into the Scottish home of the royal family to ask Queen Elizabeth to form a government. She replaces Boris Johnson, who was forced to step down after three turbulent years in power.

“We are now facing global headwinds due to the horrific Russian war in Ukraine and the consequences of Covid,” the 47-year-old former secretary of state said outside her Downing Street office.

“I am confident that together we can weather the storm. We can rebuild our economy, and we can become the wonderful modern Britain I know we can be.”

Truss, who will later announce her government appointments, said she has three priorities: growing the economy through tax cuts, dealing with rising energy costs from this week, and ensuring people get the care they need from the state-run National Health Service.

However, it inherits an economy in crisis, with double-digit inflation, rising energy costs and the Bank of England warning of a prolonged recession by the end of this year. Already, workers are striking across the economy.

Its plan to revive growth through tax cuts, with the potential to save around 100 billion pounds ($116 billion) in energy, has rattled financial markets, prompting investors to dump the pound and government bonds in recent weeks.

Truss also promised to scrap plans to raise corporate tax for big corporations, and scrap the payroll tax increase for workers and employers, designed to raise additional funding for health and social care, with the extra spending that comes from general taxes.

UK 30-year government bonds suffered their biggest one-day decline since March 2020 when the COVID-19 pandemic roiled financial markets, with investors likely to turn to the additional borrowing that Truss’ plans would require.

Ten-year borrowing costs have risen to their highest since 2011, but two-year yields have fallen, as economists suggest that capping energy prices will stop inflation from rising in the near term.

“I know we have what it takes to meet these challenges,” Truss said. “Of course it won’t be easy, but we can do it.”

“I will take action today and work every day to make it happen. United with our allies, we will defend freedom and democracy around the world to realize that we cannot have security at home without having security abroad.”

US President Joe Biden was one of the first to congratulate Truss.

“I look forward to deepening the special relationship between our two countries and working in close cooperation on global challenges, including continued support for Ukraine as it defends itself against Russian aggression,” he said on Twitter.

hand weakness

The new prime minister will address the recent crises that have gripped Britain with a weaker political hand than many of her predecessors.

Having held a position in the Cabinet of Senior Ministers for eight years, she defeated her rival Rishi Sunak in a vote of Conservative Party members by a narrower margin than expected, and more party MPs initially supported her rival.

Johnson, who tried to cling to power in July despite ministers resigning en masse over a series of scandals, told reporters and politicians assembled in Downing Street early Tuesday that the country must unite.

“It’s time for politics to end, guys,” he said in his farewell speech. “It’s time for all of us to get behind Liz Truss, her team, and her show.”

After speaking out the famous Black Door, he left London to travel to North East Scotland and tender his resignation to 96-year-old Queen Elizabeth before Truss followed him to Balmoral Castle to be appointed as his successor. Read more

Johnson used his departure speech to brag about his successes, including an early vaccine program during COVID-19 and his strong support for Ukraine in its fight against Russia.

He also listed “Brexit” as one of his main achievements, even though polls now show that a majority of people think leaving the EU was a mistake.

Britain, under Conservative rule since 2010, has stumbled from crisis to crisis in recent years, and there is now the prospect of a prolonged energy emergency that could drain household savings and threaten the future of businesses still burdened with COVID-era loans.

Household energy bills are set to jump 80% in October, but a source familiar with the situation told Reuters that Truss could freeze bills in a scheme that could cost around 100 billion pounds ($115.33 billion), bypassing the Covid-19 holiday plan. .

The size of the package, as well as the fact that the energy crisis could last for a few years, frightened investors.

The Sterling has fared worse against the US Dollar than most of the other major currencies recently.

In August alone, sterling fell 4% against the dollar, and it was the worst month for 20-year British government bonds since around 1978, according to Refinitiv and Bank of England records.

Britain’s public finances are still affected by the huge government spending spree on the Corona virus. Public debt as a share of economic output is not far from 100%, up from about 80% before the pandemic.

(dollar = 0.8671 pounds)

Written by Kate Holton; Additional reporting by Michael Holden, Alistair Smoot, Andy Bruce, Paul Sandel, David Milliken and Movija M; Editing by Angus McSwan and Andrew Cawthorne

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