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CNN INTERNATIONAL. The UK Finance Minister Kwasi Kwarteng is out of a job. Aired 8:22-9a ET

Aired October 14, 2022 - 08:22   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

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(voice-over): This is CNN Breaking News.

MAX FOSTER, CNN CORRESPONDENT, BREAKING NEWS: I'm Max Foster in London, Breaking News out of London for you. The UK Finance Minister Kwasi Kwarteng is out of a job. He was asked to stand aside Friday morning after returning a day early from IMF meetings in Washington.

Kwarteng and the Prime Minister Liz Truss had faced widespread criticism over recent mini-budget, which took financial markets into a tailspin and was blamed as well for driving down the value of the pound.

Kwarteng tweeted a letter confirming his departure. It said, "You asked me to stand aside as your chancellor. I have accepted". Bianca Nobilo is outside number 10 Downing Street. Richard is in Washington, which is where the finance minister just departed.

First you though, Bianca. Were you shocked to hear this news and what's the next stage to this? It can't be over now.

BIANCA NOBILO, CNN CORRESPONDENT: I'm not sure what turbulence in British politics could shock me at this point, Max. It wasn't as surprising as it could have been because it was somewhat telegraphed.

We knew that the chancellor was on shaky ground, basically as soon as his so-called mini-budget, maybe the misnomer of the year because it's sent. Huge shock ways through the economic system and caused a political crisis here in the UK.

But what's interesting is that the chancellor Kwasi Kwarteng and the Prime Minister Liz Truss were in lockstep when it came to their economic policy. They're both libertarian. They believe in low taxes in a small state, in less redistribution.

He's very much a scapegoat in this scenario because the principles which Liz Truss espoused during the leadership campaign to get herself elected by the party membership as leader and prime minister are completely consistent with what Kwasi Kwarteng believes.

They've shared these principles and worked together on them for several years. They've co-authored. That espouses the same things too. Obviously, what we're seeing here is a prime minister trying to shore herself up, trying to ensure her own political survival.

If that means, as it does today, asking her key ally, one of her long- time political friends and close confidant, to step aside despite believing in exactly the same things, then that's what she's prepared to do.

FOSTER: Richard, I just want to read part of the resignation letter here. It said, "We've been colleagues and friends for many. In that time, I've seen your dedication and determination. I believe your vision is the right one, and it's been an honour to serve you."

Is that an acceptance that what he did was right, and he had to carry on with it in order to stay in the job when everyone else disagrees that he did the right thing?

RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS: That's an admission that he has to be the fall guy, that he has to be the one that's gonna carry the can for this disastrous policy. The chancellor flew home last night from the IMF. You were supposed to be here today. He was supposed to be in that room.

That's a restrictive breakfast for leading central bank governors and finance ministers. We believe Andrew Bailey, Governor of the Bank of England, is in the meeting at the moment. Perhaps I didn't see him go in, but that's where they both should have been this morning.

The key point on the letter, besides the bit you mentioned, Max, the chancellor, said, "The economic environment has changed rapidly since we set out the growth plan on the 23rd of September."

Yes, the economic environment did change rapidly because of their policies, and the reality is finally drifting on them that they could no longer just blame the war in Ukraine, higher interest rates from the fed and every other bit of nonsense that they have tried to hang their policy on.

The truth is that it's the economic environment that changed was their bad policy. That's not my judgment assessment opinion. That is the assessment and opinion of everybody here at the IMF. Somebody had to go, it wasn't gonna be the prime minister. The chancellors taken the blame.

FOSTER: Talk a bit more about the prime minister. What comes next, Richard? Twitter is full of rumours and sources swirling talking about who's gonna replace Kwarteng.

Jeremy Hunt is seen as a front-runner and what's interesting about him is that he was a great supporter of Rishi Sunak, and Liz Truss was blamed for not bringing enough of those Sunak supporters into her government in the first place.

QUEST: Yes. So the idea of who takes over a safe pair of hands. That's the most important thing. The absolute crucial aspect now is a safe, credible pair of hands, and the reality is that Kwasi Kwarteng, however brilliant he might have been at university and in his banking career, the markets didn't know him.

He came out with a mini-budget without costing it or putting it through any of the normal scrutiny. Remember, Max and Bianca's better qualified than me on this. They didn't even -- this was many budget, by the way, wasn't a bit of domestic housekeeping cleaning up the accounts.

This was a major shift in UK fiscal policy, and it wasn't even discussed with her own cabinet members. Let alone the OBR, which is responsible as the honest broker, the umpire, if you will.

So the most important thing now for the UK borrowing costs have gone up by about 15 billion more for the government to spend as a result of the higher UK costs because of higher guilt rates than we've seen so far. That's what she's got to deal with. Not only a big hole in the accounts but now an even bigger hole.

Here we see the pound. Look at the pound on the screen. Now, what's that telling me? It's telling me, "All right, we like what you've done. We could have been down one or 2%, but it's not enough."

We need to see credibility, and we need to see that there's somebody at the economic helm that knows what they are doing, and to be brutal, the governor of the Bank of England today is probably going to have to in some shape or form recant on his idea of no extension of Bank of England, Central Bank, help for the market.

It won't be telegraphed as an extension. It'll be done as some fudge. The UK tonight -- the economics are bad. The financial markets are worried, and the government's in disarray.

FOSTER: Bianca, a huge test yet again for Liz Truss when she's been on the job for such a short amount of time. She was very close to Kwasi Kwarteng. Couldn't have been an easy thing to do, but as Richard says, it's not enough is it to get rid of him.

She now has to come out and effectively recant on that entire mini- budget. Doesn't she?

NOBILO: There are mixed views on Liz Truss as a politician, but one thing that most agree on is that if she is tenacious and she can be a fighter, and I think we've seen a display of that today.

One of the difficulties with this decision and whether or not the prime minister hopes it will help absolve her of some of the responsibility for the economic crisis, which ensued after the mini- budget was announced, is the fact that she is so closely associated with him.

So these are essentially Liz Truss's policies as articulated in the leadership campaign, and then an extension of thethinking those thinking. For example, cutting the tax rate for the highest earn in the UK was not something she explicitly promised in the leadership campaign, but it's in alignment with what she was espousing.

These are things which the prime minister believes in. The chancellor was a political agent entrusted with making those policies a reality.

They weren't his ideas independent of hers. So as much as this might help to remove some responsibility for the prime minister by her time, make it look like she can learn and she can listen.

There's also an element of -- I don't know, you could call it political moody (ph) going on here because as much as Kwasi Kwarteng is harmed, so is the prime minister because they were so closely associated with each other and believed the same economic principles.

In terms of what happens now, these names that are going around about who she could replace Kwasi Kwarteng with. This is important because something that was said at the beginning of the prime minister's time in office, it feels like a much longer time ago.

Under six weeks was that she needed to have a cabinet of unity because she herself has such a slim mandate. Less than 1.2% of the British electorate ushered her in that conservative base, that she needed to have a broad church of conservative opinion within the government, or she didn't do that.

She'll probably need to send that message to her party that she is willing to listen and she's willing to work with people from different political perspectives within the Conservative Party to her own and that's gonna be important because we should think that in the papers this morning and in the media, there was speculation about how long the prime minister could last, about a correlation of her rival, where she sunk, who is much more trusted by the markets and considered to be a more competent pair of hands by and large.

So she is fighting for her political life, but a phrase that's offered overused. But in this instance, and today is demonstrably true.

FOSTER: The big tests for Liz Truss today will be how the markets respond. Let's have a look at how they're doing, Richard, because this isn't the main market -- I guess we should really be looking at the guilts market, but very positive news on the FTSE 100 up, more than 1% on what's happened so far.

But she needs to come up with something else to continue that rally. Doesn't she?

QUEST: No. That 1% up, by the way, and if you look, Paris and Frankfurt are also up. That 1% has got very little to do with, I think, Max, with today's events. That's to do with last night's strong performance on Wall Street and the amazing turnaround that happened there. That's the Europe catching up with US equities.

The markets, I'm guessing from looking at what we saw at the pound, they're not gonna be losing the chancellor. It's not going to give the market's confidence. If anything, it furlish, it just shows further disarray within UK policymaking. What they're gonna be looking for is the policies that underlie it.

So, for instance, this rumour that they're going to cancel the increase in corporate tech -- corporation tax, so help pay. So they're going to keep the increase in corporation tax at a higher level that will help fill the budget gap.

Any other measures that will help fill the budget gap? Because that mini-budget, yes, they got rid of the 45% cut from 45 to 40% higher earners. They're looking at -- they're going to get rid of the corporation tax, so they cut.

They will keep that high. But you've -- Max, I can't overstate what people are saying here. People are saying this is no way to run a railroad. They are a gast (ph). They are horrified that a major G7 country with a reserve currency, don't forget Sterling is a reserve currency.

They are horrified that this is the way it's behaved. Leaving a disarray, confusion, chaos on a policy that was ill-thought through, wasn't tested, and now is being reversed piecemeal; by the way, I expect to see at some point the governor of the bank of England. He might already have walked past us. There's the governor of the bank of France just going past us.

Max, people are gonna be saying, "How did this happen in a country that was so respected when it comes to finance, comes to markets, comes to economics, and now you are piecemeal, reversing a mini-budget that probably should never have been put forward in the first place.

FOSTER: There were people in Downing Street blaming the Bank of England for a lot of this, though, because they didn't act aggressively enough early on, on interest rates. Then weren't aggressive enough on buying up guilts.

QUEST: Yes. Well, that's like blaming the firemen for not putting out the fire that you started. Quickly enough, the Bank of England responded as quickly as they could with a massive 65 billion promise of support for guilt.

But at best, anybody knows though you can only put your finger in the dyke for so long, the Bank of England was not going to -- they did a sort of whatever it takes, but they weren't gonna spend forever and ever.

Why? Because the Bank of England independent wanted to tighten monetary policy and has been doing that for the last nine months, raising interest rates.

Kristalina Georgieva, the IMF Managing Director, had talked to me yesterday about cohesive economic policies. In other words, uh, monetary and fiscal pulling in the same direction instead of opposite directions.

The analogy she used is when you've got your foot on the brake, don't step on the accelerator. And what the government in the UK was doing was exactly that. They had an entire raft of policies that was at odds with the monetary policy of the Bank of England.

As I say, Max, if I signed a little sort of energetic on this, it's because in 35 years of covering UK economics, perhaps with black Wednesday of Monday of the Euro crisis, I've never seen anything as disastrous as what we're looking at now.

FOSTER: The British finance minister, the chancellor of the exchequer, has been fired.

The British political and economic crisis is really coming to her head, all eyes on Downing Street where we are expecting Liz Truss the Prime Minister, to make a statement this afternoon where she's going to have to find some way of reassuring the likes of Richard. Also, world leaders and the financial markets around the world.

Then she has to think, about how she's going to convince her party that she deserves to stay in power. We'll have much more throughout the day and after the break.

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FOSTER: A reminder, our Breaking News this hour. The UK finance Minister Kwasi Kwarteng, is out of a job. He was asked to stand aside Friday morning. Sacked after returning a day early from IMF meetings in Washington, Kwarteng tweeted a letter to the Prime Minister confirming his departure.

It said, "You asked me to stand aside as your chancellor, and I've accepted.". We've got CNN's Bianca Nobilo in Downing Street. Richard Quest is at the IMF meeting in Washington.

Bianca, we are expecting to hear the Prime Minister speak today. We keep saying her speeches are the speeches of her career, but this run really is she's gotta convince the markets that the economy is going to be alright. She also needs to convince her own party that she deserves to stay in her job.

NOBILO: Well, her speeches are becoming increasingly important because her political situation is becoming all the more perilous as the days go on. And one of the key things that she'll have to convince her party, let alone the nation of -- is -- to put it bluntly, what is the point of her?

Because if her central economic policies that she hedged her leadership campaign on and that she shared with her transfer, who has now been rather unceremoniously. Sacked by the prime minister. If they're no longer what she stands for, and they can't be trusted to guide her actions, then what is it that she brings the country?

What is her mandate? Because most would've said that those were the key points that she campaigned on to become a leader of the Conservative Party and prime minister. So there's a lot of chatter in Westminster, and certainly among conservative MPs that I've been speaking to, that her rival in that campaign, Rishi Sunak, would've been the more reasonable, competent.

Perhaps, economically responsible candidate to be at the helm. Now, if Truss is abandoning the policies which she promoted, which she campaigned on, then that's making that argument even stronger that she isn't the right person to be in that building behind me to be inhabiting 10 Downing Street. It should be someone else, and that's why there's been discussions about the potential for a Rishi Sunak, Penny Mordaunt joint leadership, whether that's one of them being chancellor, the other being prime minister. This is all being widely and openly discussed in Westminster, how they might get rid of the Prime Minister and who could possibly succeed her.

So it is within that context that she speaks today to the country to convince them, if she can, that she is the right woman for the job. And if there's one thing I did pick up about Liz Truss when I was investigating her political career and doing a short biography on her before she became prime minister, it's that she does have this capacity to be a political chameleon.

As is well stated at this point, she used to be a member of the liberal Democrat Party. She's now a conservative on the right wing of that party, so moving considerably across the political spectrum. She was against Brexit. Now she says that she's for Brexit. She's done many U-turns on policies.

So when she has to, she can shift, and she can change whether she can convince people that she has authentically changed and that she's presenting ideas and policies that they can get on board with and that make sense for the country as a whole other issue.

FOSTER: Bianca, we have actually just heard from the prime minister, I've just been sent from Downey Street, the letter that she sent to Kwasi Kwarteng today.

One slightly confusing line is she says, "I deeply respect the decision you've taken today. You've put the national interest first." but as we understand it from this letter that we see from Kwasi Kwarteng, he was actually fired by her, but she's suggesting he made the decision.

But anyway, she talks about the energy price guarantee and all of the efforts they put into saving British people from high energy prices this winter that's been roundly respected from all political parties.

She goes on to say, "Thanks for your intervention. Families will be able to heat their homes this winter, and thousands of jobs and livelihoods will be saved. You've cut taxes for working people by legislating this week to scrap the increase in the national insurance contributions. You've set in train an ambitious set of supply-side reforms." and she goes on to talk about all of his credits.

"I know that you'll continue to support the mission that we share to deliver a low. High wage high growth economy that can transform the prosperity of our country for generations to come. Thank you for your service.". Richard, there's very little contrition here from Liz Truss, but we never really seem to get any from her anyway, and it does suggest that her speech will be pretty bombastic this afternoon.

QUEST: Absolutely. Humility is not this government's stock in trade. Let's remember the business secretary, Jacob Rees-Mogg, speaking on a BBC radio program earlier this week, specifically continued to blame the war in Ukraine, the Fed for higher interest rates for the upheaval in markets, and when it was put to the business secretary that, no, this was your policy. He denies it left, right, and center.

The truth here, Max, is that what people privately -- Mark Carney, the former Governor of the Bank of England, said to me yesterday publicly, "Look, Richard." he said, "The markets will punish bad economics. If you do not follow the correct route of the orthodox route, at the moment, you will get clobbered."

And that's what's happened and any idea that it's anything but -- to your point, contrition, very little. Humility, almost none recount. She even in that letter, she doesn't suggest that market stability needs to be established. So we'll have to wait and see exactly what they do.

At the moment, the two numbers you see on the screen, the pound shows weakness that could be dollar strength, but it's more likely wait and see the foot seat that's on the back of Wall Street. The market is waiting. They're giving a bit of time.

FOSTER: Bianca, this letter we've received which is from Liz Truss to Kwasi Kwarteng. It speaks to the chaos of Downing street right now because it's signed by the prime minister, but at the bottom, under the prime minister's name actually says the right honorable Minister Kwasi.

They haven't even checked the text of this letter. it's just a mess, isn't it?

NOBILO: It certainly seems that way, and as you say, the letters both being at cross purposes from one another. Them not suggesting that there is a coherent chain of events of what actually happened today with the chancellor, having said -- or former chancellor.

Having said that, he has accepted that he has to step aside. He'd been asked to step aside. He'd been fired, the prime minister saying that she respects his decision. Obviously, this doesn't make sense, and we've seen, as long as this government has been operational, this lack of communication or very incoherent communication, and the markets don't like that, the party doesn't like that.

There's been more frustration that ministers and MPs have been sent out to defend things, which are then backtracked upon. And also, I wonder how this will go down with the party because when I was at the Conservative Party conference in Birmingham, where of course, the chancellor and prime minister were both giving speeches.

It went down very badly with the party that the prime minister was seen to have been -- and I quote from MPs, "Throwing her chancellor under the bus and blaming him for her economic misfortune and all of the prices in the markets that the mini budget had precipitated.", they didn't like that. They felt like it was disloyal and also not true because these policies are her policies as well.

I was also told by several members of parliament that it was the prime minister who didn't want to communicate as much with the markets as the chancellor, which was another part of this mini-budget that was round be criticized, that the financial markets needed more warning of what was coming.

I do wonder how she's going to frame all of this when she's speaking to her party. There is definitely a groundswell from within the conservative party of antipathy towards trust of real frustration of an existential crisis.

These are lawmakers that felt that they'd be safe in their seats for a few more years to come, and now they think if there's an election called tomorrow, they're all gonna be out of a job, more or less. They know that the Prime Minister so far is proving very bad for their electoral fortunes, and the party's been plumping in the poll.

So yes, chaos is raining, and ironically, you might be able to hear some loud noises in the background because there's an extinction rebellion protest to my left. I suppose Liz Truss's goals today are to avoid rebellion within her party and also her own political extinctions who, perhaps appropriate.

FOSTER: We'll be back with you, Bianca. Of course, Vicky Price is an economist at the Center for Economic and Business Research and a former Chief economic advisor to the UK government. We've brought her on because we need to know whether or not any of this is going to convince the markets that things are going to get any better.

It's been utter chaos, isn't it, for weeks now in terms of the sacking today, will that reassure the markets?

VICKY PRYCE, BOARD MEMBER AND ECONOMIST, CENTRE FOR ECONOMIC AND BUSINESS RESEARCH: I think what it's showing is that there's going to be a very massive U-turn, and I think that will reassure the markets temporarily. But of course, right behind what the chancellor was saying was Liz Truss, who was the prime minister. This u-turns at least suggests that she's been listening.

Whether there is any serious faith in the long term fiscal plans of the government and whether therefore it's gonna be good for the UK economy and one will be prepared to be buying the bonds in the market that this government's gonna have to issue in very large quantities to do even the bids ahead announced before the tax-cutting budget of -- or mini-budget of September 23rd is in question frankly.

FOSTER: When she comes out and speaks to the public, could happen in an hour, could happen a bit later on. You can't predict anything, can you, with this current government. What does she need to say to back up sacking of her finance minister, which will convince people that she is now in control of the economy?

PRYCE: I think she needs to say that she's been listening, and therefore she sees that a change of tax (ph) is absolutely essential. She still wants to get growth done. Of course, we all do.

But the circumstances are such that the policies that she had put in place perhaps need a bit of rethinking and maybe a bit of postponement in terms of what needs to be done, that perhaps the timing wasn't right given all the international pressures are out there.

Of course, to probably thank the Bank of England for intervening. But I think it was very much time with the fact that the Bank of England, which has been supporting the bond market and trying to keep yields down for quite a few days now, is due to stop doing so today.

I think the two are very much intertwined, frankly. Liz Truss said to do something to reassure the markets. As I was saying before, the question is, how long will the barrier show for? What we've seen is a guilts have started coming down, so that's good news, but so has Sterling. So we don't really know where the balance of all that will be.

FOSTER: Also, if they keep falling, then that's very bad news, isn't it, for conservative voters, because so many of them are homeowners and they're gonna lose value on their homes if these mortgage rates continue going up. Where do you stand on how the Bank of England has handled all of this? Because they've been criticized as well, haven't they, for not acting aggressively enough?

PRYCE: Yes. I think -- actually, it was a big mistake that they made when they announced the day before the mini budget that they were going to start selling guilts from their balance sheet, those that had accumulated while they were assisting the government with their Covid measures because of course on the fiscal side, one had to borrow huge quantities again.

I think we borrowed something like 300 billion just in the first year of Covid and another 150 billion. The second one, Bank of England intervened very significantly kept yields. In other words, borrowing costs down by buying huge amount of bonds in the market.

Now they were criticized A for doing that even when the economy started to recover. So they carried on and B, for not raising interest rates fast enough. I think what they have now if they're announced by announcing that they were going to start selling those, they added to the indigestion in the market. In other words, if you look at what they were going to do, about 80 billion a year, they were gonna be selling.

Plus, the borrow even needed to be done to fund. The mini-budget plus the extra help that Liz Truss is giving to homeowners and businesses with freezing electricity prices. Those were huge quantities, and the market reacted negatively, and I think the Bank of England had to change its own policy because instead of selling bonds, it's been buying them to keep yields down.

Had to do that for financial stability reasons, worrying about the pension. I think that was the right thing to do at that time. But I think a rethink about how this whole area is perhaps regulated and what the Bank of England's role should be in the future at times of crisis like this, I think needs to be had.

FOSTER: She's gonna have to appoint a new finance minister. Couldn't be a more crucial central role in European government right now. Could it really, considering the state of the major British economy? Do you think she has to choose someone from Rishi Sunak's side of the party in order to at least bring in that side of the party to the government, but also to reassure the wider world that people that really understand economics are going to pee in the current government?

PRYCE: Yes. I really do think that there has to be a turnaround in terms of the way in which she's approaching even her cabinets because the cabinet for the moment, has been made up mostly, if not entirely, I think of her supporters rather, Rishi Sunak's supporters. I think she needs to be assure her whole party that she's now following a sort of broad church policy.

In other words, sort of having inter cabinet people from the other side, if you like, which had been very cautious and were very worried about some of her growth plans. Before she was elected as leader of the to party and then became Prime Minister.

FOSTER: Vicky Price, thank you so much for your insight. Today, we continue to follow the developments in the British political and economic crisis. We're expecting to hear from the prime minister this afternoon will bring you that live. Currently, the UK pound is down, so the markets are still awaiting some reassurance.

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FOSTER: I'm Max Austin London. A reminder of our breaking news this hour, the British Finance Minister Kwasi Kwarteng is out of a job. He was sacked on Friday morning after returning a day early from IMF meetings in Washington. Kwarteng's recent mini budget had triggered economic turmoil. Do stay with us for breaking news throughout the afternoon.

The UK Prime Minister Liz Trust will hold a press conference. We're told in the next hour, or so it could move. Nothing's predictable with them at the moment, but first, my colleague Richard Quest will have a live program from the IMF meetings in Washington because everyone around the world.

World leaders, economists, are wondering what Liz Truss can do to shore up this major economy and what is a reserve currency currently sinking by 0.3%. She's gotta find a way and say something that brings that back up. Richard will be back after the break.

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