Jeremy Hunt has announced intentions to repeal “virtually all” of the tax cuts promised in last month’s mini-budget, as well as to reduce support for people with high energy costs after April. Given the financial crisis, the new chancellor indicated the government would postpone plans to decrease the basic rate of income tax by 1p forever. Liz Truss intended to reduce it to 19p beginning in April of next year.
Only the elimination of the national insurance increase and the reduction in stamp duty remain after Hunt abandoned dividend and freelancing tax reforms, VAT cuts for international tourists, and a freeze on alcohol duties. The reforms, when combined with previous U-turns on company tax and the 45p income tax rate, will save the government £32 billion.
The energy price guarantee, which caps typical energy bills at £2,500, will only be in effect through April, he claimed. It will now be targeted and capped after first being in place for two years. An immediate review is being conducted by the Treasury. While announcing that the Treasury would be looking into measures to tailor aid to those most in need, Hunt stated that “it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices.” When he publishes his fiscal statement at the end of this month, he will be making “further difficult decisions on both tax and spending,” he added, warning that the cost-cutting measures revealed today would not be the end of them.
“At a time when markets are properly demanding commitments to sustainable public finances, it is not fair to borrow to fund this tax cut,” Hunt said in announcing the income tax cut’s cancellation. He emphasised that it was the government’s obligation to “do what is necessary for economic stability,” adding, “Governments cannot eradicate volatility in markets, but they can play their part, and we will do so since instability impacts retail pricing, mortgage rates, and pension values.”
Jeremy Hunt may have eliminated practically all of his predecessor’s mini-budget, but financial markets have not completely forgotten Trussonomics (Mehreen Khan writes). The pound and government bond prices rose on Monday after the new chancellor scrapped almost all of the main tax-cutting measures outlined in the September 23 mini-budget, with the exception of stamp duty cuts and the repeal of the national insurance increase. However, both sterling and gilt prices remain significantly lower than before Liz Truss took office.
The pound is up over 1.5 percent versus the dollar today, trading at $1.13, but it has failed to hit the $1.15 level that signified Truss’s election. Similarly, the UK’s borrowing costs are 90 basis points higher than before the selection of a new prime minister, as represented in the 10-year gilt rate. The 10-year gilt is currently trading at 3.94 percent, a significant increase from its peak of 4.5 percent following the Bank of England’s emergency intervention.