In News:

• Britain is about to get its third Prime Minister in three months, with Prime Minister Liz Truss announcing that she will quit the post.
• She faced growing pressure from Conservative MPs to quit after her government presented its now infamous mini-Budget.
• 

What’s in Today’s Article:

• Electoral System of UK
• News Summary

Electoral system of UK

• The UK is divided into 650 constituencies and each constituency is represented by one MP elected in the House of Commons (the UK’s lower chamber of parliament).
• It follows first past the post system to decide the winner in each constituency.
• The members of the upper chamber of the parliament, the House of Lords, are not elected. The King on the advice of the prime minister appoints them.
• To govern, a winning party needs to win more than half of the 650 seats.
• The leader of the winning party is appointed by the King as prime minister and forms a Cabinet of senior politicians.

Process of finding a successor after the PM resigns

• This process of finding a successor after the resignation of the PM is overseen by the 1922 Committee.
  • The 1922 Committee, also known as "the 22", is a committee of all backbench Conservative MPs that meets weekly when the Commons is sitting.
  • Its chair, usually a senior MP, is elected by committee members and has considerable influence within the Parliamentary Party.
  • The Committee serves as a link between rank-and-file Conservative MPs and party leadership.
• The process of finding a successor works as following:
  • Candidates putting themselves forward for the leadership must be nominated by certain number of Conservative lawmakers.
    • Officer responsible for the election to replace Truss has announced that the Candidates will need at least 100 nominations from Conservative MPs to become a contender in this race.
      • Currently, Graham Brady is the Chairman of the powerful 1922 Committee which will oversee the process.
    • If more than one Candidate meet the threshold, an election will be held.
  • Conservative lawmakers then hold several rounds of votes to whittle down the number of candidates.
    • Each time they are asked to vote for their favoured candidate in a secret ballot, and the person with the fewest votes is eliminated.
  • The final two candidates are then put to a postal ballot of the wider Conservative Party membership, with the winner named the new leader.
  • The leader of the party with a majority in the House of Commons is the de facto Prime Minister.

News Summary

• The Prime Minister Liz Truss has been forced to resign following a rebellion within her Conservative Party. Truss is now the shortest-serving PM in British history.

Reasons

• The mini-Budget
  • After becoming the PM, her government, presented a mini-Budget that essentially ramped up spending while also cutting tax revenues.
  • This set-in motion a chain of events that ultimately caused her downfall.
• Market reaction
  • The mini-Budget spooked market participants because a sharp rise in borrowings at a time when the UK’s growth prospects have been doubtful.
    • It implied that the government may not be able to repay the debts it accumulated.
  • In a panic reaction, investors started selling all possible UK assets.
    • As such, the pound sterling fell to historic lows against the US dollar; worsening the imported inflation in the process because it made imports costlier.
  • Similarly, investors, unwilling to lend money to the UK government, started selling gilts (government bonds).
  • Within no time, the Bank of England had to step in to stop a financial collapse.
• Crisis in pension funds and mortgage rates
  • A direct result of the mini-Budget and the fall in gilt prices (and a rise in gilt yields) was the crisis it set off in the pension funds in the UK.
  • The situation created massive panic and genuine doubts over the viability of the pension funds.
  • A sharp rise in market interest rates also meant that those with home loans had to either refinance or risk losing their homes.
    • Prospective owners found that a new loan was considerably costlier within no time.
• U-turn upon U-turn
  • As it became clear that the markets would continue to punish UK assets unless Truss realised her mistake, the PM reluctantly started announcing U-turns.
  • The biggest blow came when she sacked her chancellor.
    • This raised the obvious political question: why did Truss deserve to stay in office when she fired Kwarteng just for voicing Truss’ economic plans?
• The new chancellor
  • The last nail, came in the form of the actions of the newly appointed chancellor Jeremy Hunt.
  • As soon as he took charge, he ripped apart everything that was left of Truss’s agenda.