LONDON — Britain’s government faced intensifying calls on Thursday to retreat from tax-cutting plans that have alarmed financial markets, as questions continued to swirl about the future of the country’s new prime minister, Liz Truss, and her beleaguered chancellor of the Exchequer, Kwasi Kwarteng.
On a day of political turmoil, the foreign secretary, James Cleverly, warned colleagues against trying to oust Ms. Truss. And Mr. Kwarteng rejected suggestions that the backlash against his so-called mini-budget, which includes unfunded tax cuts and a costly package to help consumers with energy bills, could cost him his job, insisting: “I’m not going anywhere.”
Mr. Kwarteng’s plans, outlined on Sept. 23, rattled financial markets, sent the currency plunging, increased government borrowing costs and prompted lenders to withdraw some home purchase loans.
Since then, Mr. Kwarteng has been forced into one retreat, shelving plans to reduce income taxes for the highest earners, but that has failed to stabilize jittery financial markets.
On Thursday, Downing Street said that its policy had not changed, but that did nothing to quell speculation that the government would have to change course and increase corporate taxes, something it had previously decided against.
Mr. Kwarteng has promised to provide more detail on Oct. 31 on how his plans will be funded, but most experts believe that further concessions are inevitable and some think that the sooner the government faces up to that prospect, the better.
“Given the pain being caused to the real economy by the financial turbulence, it’s not clear why it is in anyone’s interests to wait 18 more days before the inevitable U-turn on the mini-budget,” wrote George Osborne, a former chancellor of the Exchequer.
The political fallout has been dramatic. Ms. Truss became prime minister less than six weeks ago, but the gathering sense of crisis following last month’s announcement has caused a collapse in support for her Conservative Party, according to opinion polls, poisoning the mood among its lawmakers.
Speaking from Washington, where he is attending a meeting of the International Monetary Fund, Mr. Kwarteng acknowledged there had been “some turbulence” following his announcement last month but told the BBC that he was still focused on delivering the tax-cutting plans. Asked if he and Ms. Truss would be in their jobs next month, Mr. Kwarteng replied, “Absolutely, 100 percent.”
For the government, which blames global economic factors — including the war in Ukraine — for the turbulence, there was a bit of good news on Thursday when some borrowing costs dipped. Yet one explanation was that the markets were already factoring in a reversal of government policy.
Mujtaba Rahman, an analyst with the risk management consultancy Eurasia Group, predicted the government would be forced into policy changes. “They have no choice; otherwise market pressure is going to be unbearable and relentless and it is going to create a huge mess in Parliament,” he said. “There is no doubt in my mind whatsoever that is coming. The question is, how aggressive is the U-turn?”
Mr. Rahman said that reversals over corporate and income taxes were likely, and that the government might also have to scale back its program to protect consumers from rising energy bills.
But retreating is difficult politically because Mr. Kwarteng’s tax-cutting plan, which aims to ignite economic growth, was central to the agenda outlined by Ms. Truss when she campaigned to be leader of the Conservative Party during the summer.
So Ms. Truss will have to fight to retain her authority if she is forced into another reversal over her a flagship policy. A free-market libertarian, Ms. Truss had derided the economic orthodoxy of Britain’s Treasury when she campaigned to become party leader, arguing that it stifled economic growth.
But traders have been concerned that expert advice is now being ignored. Before making his announcement last month Mr. Kwarteng fired the top official at the Treasury and sidelined the Office for Budget Responsibility, an independent watchdog that normally scrutinizes such announcements and gives a verdict on how public finances are being managed.
As well as cutting taxes, Ms. Truss hopes to bolster economic growth through structural changes such as relaxing some planning rules and some immigration controls.
But there is skepticism that she has the support for such measures among her own lawmakers. A majority of them preferred Rishi Sunak, a former chancellor of the Exchequer, to succeed the last prime minister, Boris Johnson who was forced out after a series of scandals. But the final decision fell to rank-and-file party members, who chose Ms. Truss.
On Wednesday, while answering questions in Parliament, Ms. Truss gave no indication of a change of course, and said that government spending would not be cut to compensate for an estimated hole in the public finances of around 60 billion pounds, about $68 billion, caused by the tax-cutting plans.
Ms Truss’s stilted performance in Parliament on Wednesday, and at a later private meeting with Conservative lawmakers, did little to alleviate the pressure that has grown in recent weeks as the opposition Labour Party records the sort of opinion poll leads it last achieved in the 1990s — before it won a landslide election victory.
Some Conservative lawmakers fear not only that their party will be out of power after the next election — which must be held by January 2025 — but also that many of them will lose their own seats in Parliament. Yet having only recently ousted the former prime minister, Boris Johnson, and installed Ms. Truss, it would be difficult to explain to voters another change.
Under the Conservative Party’s rules, Ms. Truss cannot face a leadership challenge until September 2023, but so sour is the mood within the party that there is already talk of changing the rules.
On Thursday Mr. Cleverly, the foreign secretary, acknowledged the threat to Ms. Truss’s position even as he defended her strategy. “Changing the leadership would be disastrously bad idea,” he told the BBC.
