The UK’s new chancellor of the exchequer, Jeremy Hunt, has reversed the tax cuts promised by his predecessor and scaled back support for household energy bills in an attempt to restore financial stability following weeks of market turmoil.
Hunt was brought in only on Oct. 14 to boost the UK government’s fiscal credibility after former Chancellor Kwasi Kwarteng’s “mini-budget,” which included £45 billion ($51 billion) of unfunded tax cuts, spooked financial markets, causing the pound to fall and borrowing costs to soar.
In an Oct. 17 televised statement, Hunt overturned almost the entire economic plan set out slightly more than three weeks ago by Kwarteng with the enthusiastic backing of UK Prime Minister Liz Truss.
“It is a deeply held Conservative value—a value that I share—that people should keep more of the money that they earn,“ Hunt said. ”But at a time when markets are rightly demanding commitments to sustainable public finances, it is not right to borrow to fund this tax cut.”
The Big Tax Reverse
Following negative reactions from financial markets, Truss has been forced into a series of U-turns, including scrapping the plan to cut the 45 percent top rate of tax and freeze the corporation tax.Now Hunt has moved to scrap much of the remaining tax plans in the mini-budget. He said he’s abandoning plans to cut the basic rate of tax by 1 pence and that it would remain at 20 pence in the pound until the country can afford to reduce it.
The cut in dividend tax promised by his predecessor will also go, along with VAT-free shopping for overseas tourists, the freeze on alcohol duty, and the easing of the IR35 rules for the self-employed.
Less Energy Help
The new chancellor also scaled back the energy price support that the government had promised to households and businesses.He said the energy price guarantee—which had been due to cap prices for two years—will end in April, after which the government will look to target help for those most in need.
Hunt called the energy price guarantee “a landmark policy supporting millions of people through a difficult winter.”
He confirmed that the promised support will be guaranteed until April, but that “it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices.”
The Treasury will lead a review into how to support energy bills beyond April and design a new approach that will “cost the taxpayer significantly less than planned whilst ensuring enough support for those in need, according to Hunt.
‘Humiliating Climb-Down’
About an hour after Hunt’s statement, the prime minister wrote on Twitter: “The British people rightly want stability, which is why we are addressing the serious challenges we face in worsening economic conditions. We have taken action to chart a new course for growth that supports and delivers for people across the United Kingdom.”Asked about the credibility problem Truss now faces after the mini-budget U-turns, her official spokesman insisted that she was providing “stability of leadership.”
“The prime minister is listening to the public,“ the spokesman said. ”She is listening to advice on the markets, she is listening to her colleagues, and she is making the necessary difficult decisions to change our approach so that we can provide the economic stability and indeed maintain that stability of leadership, which is important.”
But the main opposition Labour Party said the Conservatives “have lost all credibility.”
Labour’s shadow chancellor, Rachel Reeves, said the Tories can’t provide the “confidence and stability” needed for growth.
“The humiliating climb-down on their energy plan begs the question yet again—why won’t they bring in a windfall tax on energy producers to help foot the bill?” Reeves asked.
