Britain’s new Chancellor of the Exchequer, Jeremy Hunt, on Monday reversed entirely all of British Prime Minister Liz Truss’ tax cuts and scaled back the expensive energy bills support in an emergency fiscal statement.
Hunt’s statement is an attempt to reassure the markets about the country’s “fiscal sustainability” and calm the shockwaves of his predecessor’s mini-budget last month. The finance minister said a 1 pence cut to income tax will be delayed “indefinitely” until the UK’s finances improve, instead of being introduced in April 2023 as announced in predecessor Kwasi Kwarteng’s mini-budget.
The government’s energy price guarantee will only be universal until April and not for two years as originally planned.
“The government has today decided to make further changes to the mini-budget, and to reduce unhelpful speculation about what they are, we’ve decided to announce these ahead of the medium-term fiscal plan, which happens in two weeks,” Hunt said in a statement.
After meetings with Prime Minister Liz Truss at her Chequers country retreat and the Governor of the Bank of England, Andrew Bailey, on Sunday, the new finance minister who took over at the UK Treasury on Friday decided to fast-track some of the measures before a detailed Medium-Term Fiscal Plan as scheduled for October 31.
It was widely expected that more of the so-called “Trussonomics” of unfunded tax cuts would be ditched in Monday’s statement after the Bank of England’s emergency long-term government bond buying measures come to an end.
It will be followed up by a statement in the House of Commons on Monday evening.
“The Chancellor will make a statement later today, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability,” the UK Treasury said.
“This follows the Prime Minister’s statement on Friday, and further conversations between the Prime Minister and the Chancellor over the weekend, to ensure sustainable public finances underpin economic growth.
The Chancellor will then deliver the full Medium-Term Fiscal Plan to be published alongside a forecast from the independent Office for Budget Responsibility (OBR) on 31 October,” the Treasury said.
It confirmed that the Governor of the Bank of England and the Head of the UK’s Debt Management Office have been briefed on these new plans, which seem to already have a positive impact on the markets as the Pound Sterling rebounded against the US Dollar.
The bond markets also suggested an easing of recent pressures, given additional concerns in some quarters after the Bank of England concluded its emergency gilt market support on Friday.
The central bank issued its own statement ahead of financial markets opening after the weekend to say that its operations, aimed at helping pension funds battling higher collateral demands, had enabled a “significant increase in the resilience of the sector”.
The markets saw unprecedented turmoil after former Chancellor Kwasi Kwarteng’s tax-cutting mini-budget, partly due to the lack of an OBR forecast of how these would be funded.
Meanwhile, Truss continues to face turmoil after sacking close friend Kwarteng after just 38 days in the job with at least three of her backbench Conservative MPs calling for a change in leadership.
Tory MPs Crispin Blunt, Andrew Bridgen and Jamie Wallis have publicly stated they believe she should resign, while Opposition Labour leader Sir Keir Starmer has called on Truss to face Parliament and accused her of being “in office but not in power”.
While Hunt has insisted the Prime Minister is still in charge, there is a widespread view that the new finance minister is now the de facto leader as he unpicks the bulk of the economic policies Truss had campaigned on during the leadership contest with former Chancellor Rishi Sunak.