LONDON — Under relentless pressure from financial markets, Britain’s new chancellor of the Exchequer, Jeremy Hunt, swept away the free-market economic agenda of Prime Minister Liz Truss on Monday, a humiliating repudiation that left her credibility in tatters and her political survival in doubt.
Mr. Hunt said he would reverse virtually all the government’s planned tax cuts, which were the centerpiece of Ms. Truss’s promise to reignite Britain’s economic growth, but which kicked off weeks of market turmoil because of fears that they would force the government into massive new borrowing.
The wholesale about-face produced a striking tableau in Parliament later in the day when Mr. Hunt rose to defend the revamped fiscal plan. As he fenced with critics, an expressionless Ms. Truss sat silently behind him on the frontbench, already appearing like a bystander in her own government.
While Mr. Hunt’s statement calmed the markets, it set off a tumultuous day in British politics. Lawmakers from the opposition Labour Party demanded that Ms. Truss resign, and several Conservative lawmakers rose to criticize the way the government had rolled out its ill-fated fiscal plan.
Late on Monday, Ms. Truss made her first full apology for the chaos of recent weeks but gave no indication that she plans to stand aside, saying she aimed to lead her party into the next general election.
“I do want to accept responsibility and say sorry for the mistakes that have been made,” she told the BBC’s political editor, Chris Mason, adding “I did make mistakes and I’ve been upfront and honest about that.”
Ms. Truss’s Conservative government had planned to announce the details of its fiscal plan on Oct. 31, but with the markets pummeling the pound and other British assets, Mr. Hunt rushed forward the schedule. His announcement constituted one of the most dramatic policy reversals in modern British political history.
“A central duty for any government is to do what’s necessary for economic stability,” Mr. Hunt declared. “No government can control markets, but every government can give certainty about the sustainability of public finances.”
The decisions Britain would have to make about its economy, he added, were “eye-wateringly difficult.’’
In addition to scrapping the tax cuts, the chancellor also said the government would end its costly state intervention to cap energy prices next April. It will be replaced by a more targeted, though still undefined, program that could increase uncertainty for households facing soaring gas and electricity bills.
Economic scholars struggled for an example of another government in an advanced country that had so thoroughly disavowed its economic policy. The closest analogy, said Kenneth S. Rogoff, a professor of economics at Harvard, was France in 1983, when an embattled President Francois Mitterrand pivoted from a left-wing economic plan, based on income redistribution, to one of austerity.
“But unlike Truss,” Professor Rogoff said, “Mitterrand had won a real election and time was on his side to right the ship.”
It was a deeply damaging day for a prime minister who has been in office for only six weeks. Before appearing next to Mr. Hunt in Parliament, Ms. Truss had sent the leader of the House of Commons, Penny Mordaunt, to answer questions about the crisis on her behalf. That prompted accusations from opponents that she was ducking an awkward confrontation.
“The prime minister is not under a desk,” Ms. Mordaunt, who ran against Ms. Truss during the Conservative Party leadership contest this summer, felt compelled to say, when pressed about the prime minister’s whereabouts.
As Mr. Hunt moved to take control of the economic levers of government, Conservative lawmakers were plotting ways to force Ms. Truss out of power. The mechanics of removing her remained murky; the lawmakers were casting about for ways to find a consensus replacement for her that would avoid another full-scale and divisive leadership contest. A handful have called publicly for her resignation.
Whatever the method, political analysts said that her position appeared untenable, given the gutting of her legislative agenda.
“It’s difficult to think of a possible reason why you might want to hang on with her when you could stem the bleeding and move on by getting someone else in,” said Tim Bale, a professor of politics at Queen Mary University of London, “You just want to get the whole episode behind you and pretend it’s a bad dream.”
For the Tories, the urgency of the task was underscored by a new poll released Monday that showed Labour ahead by 36 percentage points, 7 points higher than a previous survey last week. Other recent polls have also shown large margins for Labour.
In perhaps the only ray of light for Downing Street, the pound and British bonds steadied after the announcement. Market backlash has driven much of the government’s recent actions. Mr. Hunt’s hastily scheduled announcement came three days after Ms. Truss ousted his predecessor, Kwasi Kwarteng, forcing him to cut short a visit to annual meetings of the International Monetary Fund in Washington.
Mr. Hunt, in announcing the policy shift, said the government would shelve a reduction in the basic income tax rate, the centerpiece of Ms. Truss’s tax-cutting plan. Mr. Kwarteng had earlier scrapped a tax cut for high-income people and Ms. Truss announced she would, after all, go ahead with a planned increase in corporate taxes, after initially saying she would cancel it.
On Monday afternoon, Mr. Hunt said he was open to the principle of imposing a windfall profits tax on energy producers, another measure that Ms. Truss had rejected during the leadership contest. It capped a series of reversals that left Ms. Truss with an economic program similar to that of Rishi Sunak, the former chancellor whom she defeated in that campaign after denouncing his proposals.
The government’s goal is to restore Britain’s credibility in the markets by explaining how it plans to fill an estimated budget hole of 72 billion pounds ($81.8 billion). Mr. Hunt said the government’s reversals would raise an additional £32 billion a year. He said he would detail the cuts in spending on Oct. 31.
Whether Ms. Truss will still be prime minister then is up for debate. Under the existing rules, she should not face a leadership challenge until next September at the earliest. But the Conservative Party rule book can easily be changed if enough lawmakers want to do so.
The bigger problem for the Tories is to ensure a swift handover of power to a leader who can be relied on to restore stability. The current rules allow for lawmakers to select two contenders and for party activists to make the final choice. But the protracted contest this summer to replace Boris Johnson produced Ms. Truss as its winner, and senior Tories are determined to avoid handing that decision to party members again.
The cleanest way would be a coronation of the type that took place in 2003 when Michael Howard became Conservative Party leader, unopposed. But that took place when the Conservatives were in opposition. Now, with the lure of two years in Downing Street, it may be hard for ambitious politicians to allow one of their rivals to take the crown uncontested.
“There are three or four people who would like to do the job, reckon they could do the job, and would find it hard to concede to someone else it without a fight,” Professor Bale said.
Any election would be less predictable than a coronation. In such a scenario, for example, Mr. Johnson, the discredited former prime minister, might try to get his job back, however far-fetched that might seem.
One senior Conservative lawmaker, Charles Walker, described Ms. Truss’s position as “enormously precarious.” He said to the BBC, “I think when you are in this sort of position you’ve got to expect as a prime minister that the party won’t tolerate it for any length of time, certainly not weeks.”
