British finance minister Hunt reverses tax cuts, reduces energy bill support

Britain’s new Chancellor of the Exchequer, Jeremy Hunt, has reversed all tax cuts and scaled back the expensive energy bills support promised by British Prime Minister Liz Truss.

Hunt’s emergency fiscal statement on Monday is an attempt to reassure the markets about the country’s fiscal sustainability and calm the shockwaves sent across by his predecessor Kwasi Kwarteng’s mini-Budget last month.

Also read: Biden: Truss plan a mistake amid worldwide inflation

The finance minister said a 1-pence cut to income tax would be delayed “indefinitely,” until the UK’s finances improved. Kwarteng, in his mini-Budget, had announced its introduction from April 2023. The government’s energy price guarantee will only be universal until April and not for two years, as originally planned.

Hunt fast-tracks some measures

Hunt, who took over at the UK Treasury on Friday, spent Sunday meeting Prime Minister Liz Truss at her Chequers country retreat and the Governor of the Bank of England, Andrew Bailey. He decided to fast-track some of the measures before the detailed Medium-Term Fiscal Plan is laid out on October 31.

“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.

Also read: UK PM Liz Truss may be ousted by this week: Report

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.

Positive impact on markets

The Chancellor will deliver the full Medium-Term Fiscal Plan to be published alongside a forecast from the independent Office for Budget Responsibility (OBR) on October 31, 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. And they already seem to have a positive impact on the markets as the Pound Sterling rebounded against the US Dollar.

Also read: Bookie odds favour Sunak return as Truss struggles to save sinking ship

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. It said that its operations, aimed at helping pension funds battling higher collateral demands, had enabled a “significant increase in the resilience of the sector.”

Truss continues to face turmoil

The markets saw unprecedented turmoil after Kwarteng’s tax-cutting mini-Budget, partly due to the lack of an OBR forecast of how these would be funded. Truss sacked close friend Kwarteng after only 38 days in the job but continues to face turmoil, with at least three of her backbench Conservative MPs calling for a change in leadership.

Also read: Damage control: New UK Finance Minister Jeremy Hunt warns of tax hikes

Tory MPs Crispin Blunt, Andrew Bridgen, and Jamie Wallis have publicly stated they believe she should resign. 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. He is reversing the bulk of the economic policies Truss had promised during the leadership contest with former Chancellor Rishi Sunak.

(With agency inputs)