Having sealed her chancellor’s fate, the markets could seal the prime minister’s fate
So farewell, then, Trussonomics.
The demise of the country’s second shortest-lived chancellor also brings with it the demise of the country’s shortest-lived economic movement.
Liz Truss came into office promising to boost the country’s growth rate through a forensic combination of tax cuts, reforms to the country’s supply side (for which read: things like planning reform) and spending restraint. This was, if you squint a little bit, not dissimilar to the kinds of policies espoused by Ronald Reagan and Margaret Thatcher.
Tory MPs turn on Truss as PM scrambles to save job after sacking chancellor – latest updates
It always looked risky – especially at such a fragile point for the global economy. We are coming to the end of a 12-year period of cheap money, something which is causing a near-nervous breakdown in financial markets. Central banks are in the process of raising interest rates and trying to feed the glut of bonds they bought during the financial crisis back in the market.
As if that weren’t enough, Europe is facing one of its bleakest economic winters in modern memory, with a war raging in Ukraine and energy prices touching historic highs. It is hard to think of many less auspicious periods to attempt an untested new economic manifesto.
Yet Ms Truss and her former chancellor Kwasi Kwarteng pushed on all the same. And unlike Thatcher, whose first few budgets were grisly austerity packages which no one much enjoyed, Ms Truss and Mr Kwarteng aimed to turn Thatcherism on its head. Instead of fixing the public finances first and then cutting taxes second, they opted to spend the fruits of economic growth before that growth had even been achieved.
The mini-budget of 23 September was a small document with extraordinarily large consequences. Ironically, the more expensive the measures were, the less controversial they turned out to be. The scheme to cap household energy unit costs will potentially cost hundreds of billions of pounds, yet (and we know this because it was pre-announced long before the mini-budget) investors barely batted an eyelid. They carried on lending to this country at more or less the same or equivalent rates.
The same was not the case for the rest of the mini-budget’s policies. Shortly after they were announced – everything from the abolition of the 45p rate (actually quite cheap in fiscal terms) to the cancellation of Rishi Sunak’s corporation tax rise – markets began to lurch in what was, for Ms Truss, and most UK households, the wrong direction. The pound sank, the yields on government debt, which determine the interest rates across most of the economy, began to climb.
That was bad enough. When Mr Kwarteng announced gleefully a couple of days later on television that he had more tax cuts up his sleeve, the trot out of the country became a stampede. The pound fell, briefly, to the lowest level against the dollar in the history of, well, the dollar.
Even more worryingly, those interest rates on government bonds rose at an unprecedented rate, causing all sorts of malfunctions throughout the money markets.
The most obvious – and the one that perhaps will have the longest legacy – is the rise in mortgage rates. But the unexpected consequences were even more worrying, among them a crisis in funds used by pension schemes. That sparked a “run dynamic” which compelled the Bank of England to step in with an emergency support scheme.
Even at this point, we were into unprecedented territory. Never before had the Bank been forced to intervene quite like this. Never before had it had to do so as a result of a government’s Budget.
The intervention, however, had some success, bringing down the relevant interest rates and bringing markets back from the edge. But there was a sting in the tail: a deadline. Today, 14 October.
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Analysis: PM’s new tax U-turn
In hindsight perhaps it’s obvious that this, then, would always have been the day when the government might face another existential crisis. Investors were always going to be nervous ahead of the Bank’s withdrawal from this neck of the bond market. And that is precisely what happened: after the governor reiterated, on a panel in Washington, that he was indeed serious, all eyes then turned to the chancellor. Could he say something to reassure markets?
In the event, the answer was: no. But something else changed matters: growing rumours of a U-turn. That brings us to this morning. The chancellor, pulled back from Washington early, was dismissed. The U-turn began. The corporation tax freeze is to be abandoned. The coming medium-term fiscal plan will involve austerity and a big dose of fiscal pain. The upshot is that Trussonomics, which was hinged clearly on tax cuts like these, is dead in the water.
However, the bigger question concerns what happens next. Those markets, which Ms Truss said explicitly were the reason for her U-turn, are still pretty frantic. No one knows how they’ll fare on Monday, but, whether right or wrong, another grisly day will almost certainly be seen as a sign of the government’s failure. And, having sealed the fate of her chancellor, the markets could well seal the fate of the prime minister.
But that’s a few days away – a long time in both politics and markets.
Liz Truss appoints Jeremy Hunt as chancellor. Pic: Andrew Parsons / No 10 Downing Street
In the meantime, here is something to dwell on: an alternative version of history. In a parallel universe, Ms Truss and Mr Kwarteng did things slightly less hastily. They decided their emergency Budget would simply deal with the energy price shock coming this winter. They promised an OBR statement and hatched plans for a growth-generating budget in a few months’ time.
In that parallel universe, interest rates probably wouldn’t have risen so high. The rises would, anyway, have been blamed on the Bank of England, not the government. The government would have enjoyed some kudos for having prevented energy-related penury this winter and made merry in their honeymoon. Things could have been oh-so different.
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Now, all of this is of course imponderable. But it does rather underline an important point: none of this was inevitable. This wasn’t a crisis like 1992 – where the UK faced monetary pressures suffered by nearly every other nation in Europe. It was simply a succession of very unfortunate decisions at precisely the wrong moment.
At a time of market turmoil and war in Europe, Ms Truss and Mr Kwarteng chose to take a gamble. It did not pay off.
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World
IDF chief says conditions ‘created’ for Gaza ceasefire – as Trump says it could be ‘this week or next’
Donald Trump and a leading figure in the Israeli army have suggested a ceasefire in Gaza could be close.
Eyal Zamir, chief of staff of the Israel Defence Forces (IDF), told Israeli media that “conditions were created to advance a deal” to bring about an end to the conflict in the coastal territory, and the release of hostages.
In a televised address, he said: “We have achieved many significant results, we have caused great damage to the governance and military capabilities of Hamas.
“Thanks to the operational power that we have demonstrated, the conditions have been created to advance a deal to release the hostages.”
‘This week, or next’
It comes as the US president hosts Israeli Prime Minister Benjamin Netanyahu in Washington DC on a prolonged visit this week.
Mr Trump said his meetings with Mr Netanyahu were focused “on Gaza for the most part”.
He said: “I think we have a chance [of a ceasefire] this week, or next week.”
However, the US leader added: “Not definitely,” saying nothing was certain about the situation in Gaza.
Donald Trump speaks, as Pete Hegseth looks on, during a dinner with Israeli Prime Minister Benjamin Netanyahu.
Pic: Reuters
Benjamin Netanyahu speaks during a bilateral dinner with Donald Trump this week.
Pic: Reuters
Hamas reiterates ‘keenness’ to end fighting
Meanwhile, Hamas has repeated its message that it is committed to the negotiations but warned of a number of sticking points despite the positive noises from senior Israeli figures.
In a statement, the militant group said: “In its keenness to succeed in the ongoing efforts, the movement [Hamas] has shown the necessary flexibility and agreed to release 10 prisoners.
“The key points remain under negotiation, foremost among them: the flow of aid, the withdrawal of the occupation from the territories of the Gaza Strip, and the provision of real guarantees for a permanent ceasefire.”
Read more:
What is the possible Gaza ceasefire deal?
The man acting as backchannel for Hamas
‘One issue’ still to be resolved in ceasefire, Sky News understands
Mr Trump’s special envoy to the Middle East Steve Witkoff previously told a cabinet meeting that the anticipated ceasefire would last 60 days and involve the release of ten hostages and nine bodies.
A source close to the negotiations told Sky News that the hostage release would take place in two waves during the 60 days and was conditional on the ceasefire.
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Israeli strikes continue
It comes as Israeli attacks on Gaza continue.
According to hospital officials, at least 40 Palestinians were killed in the latest attacks on Gaza – including 10 people from the same family.
Nasser Hospital in the southern Gaza city of Khan Younis said the dead included 17 women and 10 children.
While the politicians talk, so many people come from around the world to try to get across the Channel on small boats. But why?
Why make such a perilous crossing to try to get to a country that seems to be getting increasingly hostile to asylum seekers?
As the British and French leaders meet, with small boats at the forefront of their agenda, we came to northern France to get some answers.
It is not a new question, but it is peppered with fresh relevance.
Over the course of a morning spent around a migrant camp in Dunkirk, we meet migrants from Gaza, Iraq, Eritrea, South Sudan, Sri Lanka and beyond.
Some are fearful, waving us away; some are happy to talk. Very few are comfortable to be filmed.
All but one man – who says he’s come to the wrong place and actually wants to claim asylum in Paris – are intent on reaching Britain.
They see the calm seas, feel the light winds – perfect conditions for small boat crossings.
John has come here from South Sudan. He tells me he’s now 18 years old. He left his war-torn home nation just before his 16th birthday. He feels that reaching Britain is his destiny.
“England is my dream country,” he says. “It has been my dream since I was at school. It’s the country that colonised us and when I get there, I will feel like I am home.
“In England, they can give me an opportunity to succeed or to do whatever I need to do in my life. I feel like I am an English child, who was born in Africa.”
‘England is my dream country,’ John tells Adam Parsons
He says he would like to make a career in England, either as a journalist or in human resources, and, like many others we meet, is at pains to insist he will work hard.
The boat crossing is waved away as little more than an inconvenience – a trifle compared with the previous hardships of his journey towards Britain.
We meet a group of men who have all travelled from Gaza, intent on starting new lives in Britain and then bringing their families over to join them.
One man, who left Gaza two years ago, tells me that his son has since been shot in the leg “but there is no hospital for him to go to”.
Next to him, a man called Abdullah says he entered Europe through Greece and stayed there for months on end, but was told the Greek authorities would never allow him to bring over his family.
Britain, he thinks, will be more accommodating. “Gaza is being destroyed – we need help,” he says.
Abdullah says ‘Gaza is being destroyed – we need help’
A man from Eritrea tells us he is escaping a failing country and has friends in Britain – he plans to become a bicycle courier in either London or Manchester.
He can’t stay in France, he says, because he doesn’t speak French. The English language is presented as a huge draw for many of the people we talk to, just as it had been during similar conversations over the course of many years.
I ask many of these people why they don’t want to stay in France, or another safe European country.
Some repeat that they cannot speak the language and feel ostracised. Another says that he tried, and failed, to get a residency permit in both France and Belgium.
But this is also, clearly, a flawed survey. Last year, five times as many people sought asylum in France as in Britain.
And French critics have long insisted that Britain, a country without a European-style ID card system, makes itself attractive to migrants who can “disappear”.
Read more:
Channel crossings rise 50% in first six months of 2025
French police forced to watch on as migrants attempt crossing
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Migrant Channel crossings hit new record
A young man from Iraq, with absolutely perfect English, comes for a chat. He oozes confidence and a certain amount of mischief.
It has taken him only seven days to get from Iraq to Dunkirk; when I ask how he has made the trip so quickly, he shrugs. “Money talks”.
He looks around him. “Let me tell you – all of these people you see around you will be getting to Britain and the first job they get will be in the black market, so they won’t be paying any tax.
“Back in the day in Britain, they used to welcome immigrants very well, but these days I don’t think they want to, because there’s too many of them coming by boat. Every day it’s about seven or 800 people. That’s too many people.”
“But,” I ask, “if those people are a problem – then what makes you different? Aren’t you a problem too?”
He shakes his head emphatically. “I know that I’m a very good guy. And I won’t be a problem. I’ll only stay in Britain for a few years and then I’ll leave again.”
A man from Sri Lanka says he “will feel safe” when he gets to Britain; a tall, smiling man from Ethiopia echoes the sentiment: “We are not safe in our home country so we have come all this way,” he says. “We want to work, to be part of Britain.”
Emmanuel is another from South Sudan – thoughtful and eloquent. He left his country five years ago – “at the start of COVID” – and has not seen his children in all that time. His aim is to start a new life in Britain, and then to bring his family to join him.
He is a trained electrical engineer, but says he could also work as a lorry driver. He is adamant that Britain has a responsibility to the people of its former colony.
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“The British came to my country – colonising, killing, raping,” he said. “And we didn’t complain. We let it happen.
“I am not the problem. I won’t fight anyone; I want to work. And if I break the laws – if any immigrant breaks the laws – then fine, deport them.
“I know it won’t be easy – some people won’t like me, some people will. But England is my dream.”
World
IDF presence in Gaza ‘only issue’ still to be resolved in push for Israel-Hamas ceasefire, Sky News understands
Only one issue remains unresolved in the push to achieve a ceasefire in Gaza, according to Sky sources.
Intense negotiations are taking place in Qatar in parallel with key talks in Washington between US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu.
Two sources with direct knowledge of the negotiations have told Sky News that disagreement between Israel and Hamas remains on the status and presence of the Israel Defence Forces (IDF) inside Gaza.
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Gaza ceasefire deal in progress
The two sides have bridged significant differences on several other issues, including the process of delivering humanitarian aid and Hamas’s demand that the US guarantees to ensure Israel doesn’t unilaterally resume the war when the ceasefire expires in 60 days.
On the issue of humanitarian aid, Sky News understands that a third party that neither Hamas nor Israel has control over will be used in areas from which the IDF withdraws.
Benjamin Netanyahu briefed reporters on Capitol Hill about the talks on Tuesday. Pic: AP
This means that the controversial Gaza Humanitarian Foundation (GHF) – jointly run by an American organisation and Israel – will not be able to operate anywhere where the IDF is not deployed. It will limit GHF expansion plans.
It is believed the United Nations or other recognised humanitarian organisations will adopt a greater role.
On the issue of a US guarantee to prevent Israel restarting the war, Sky News understands that a message was passed to Hamas by Dr Bishara Bahbah, a Palestinian American who has emerged as a key back channel in the negotiations.
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Read more from Sky News:
Trump puts pressure on Netanyahu
Netanyahu backs Trump for peace prize
Potential Gaza deal explained
The message appears to have been enough to convince Hamas that President Trump will prevent Israel from restarting the conflict.
However, there is no sense from any of the developments over the course of the past day about what the future of Gaza looks like longer-term.
Final challenge is huge
The last remaining disagreement is, predictably, the trickiest to bridge.
Israel’s central war aim, beyond the return of the hostages, is the total elimination of Hamas as a military and political organisation. The withdrawal of the IDF, partial or total, could allow Hamas to regroup.
One way to overcome this would be to provide wider guarantees of clear deliverable pathways to a viable future for Palestinians.
But there is no sense from the negotiations of any longer-term commitments on this issue.
Two key blocks have been resolved over the past 24 hours but the final challenge is huge.
The conflict in Gaza erupted when Hamas attacked southern Israel in October 2023, killing around 1,200 people and taking 251 hostages, according to Israeli figures. Some 20 hostages are believed to remain alive in Gaza.
Israel has killed more than 57,000 Palestinians, according to Gaza’s Hamas-run health ministry, which does not distinguish between combatants and civilians.
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