In another chaotic week in Downing Street, Chancellor Jeremy Hunt has axed most of Kwarteng’s recent mini-budget.
Mr Hunt announced he was scrapping “almost all” of the tax cuts announced by the government last month, in a bid to stabilise the financial markets.
There are many implications for business as Mr Hunt replaced many of the budget’s promises - the planned cap on the annual cost of energy at £2,500 for a typical household for two years will be scaled back. That pledge will now only last until April, after which a new approach will be found “that will cost the taxpayer significantly less than planned”.
A penny cut in income tax due in April will now not happen. The chancellor said the rate would remain at 20p “indefinitely until economic circumstances allow for it to be cut”.
Other mini-budget measures to be axed include:
- Cuts to dividend tax rates
- The reversal of off-payroll working reforms introduced in 2018 and 2021
- VAT-free shopping for international tourists
- The freeze on alcohol duty rates
The government had already abandoned plans to scrap the 45p rate of income tax for top earners and had U-turned on a promise not to increase corporation tax. However, he said the cuts to stamp duty paid on house purchases and the scrapping of the National Insurance rise would continue.
The plan to remove the cap on bankers’ bonuses is another of the mini-budget policies to survive.
Mr Hunt, speaking during an emergency statement in the Commons with Ms Truss behind him, said the UK “funds our promises and pays our debts”.
He said “when that is questioned - as it has been - this government will take the difficult decisions necessary to ensure there is trust and confidence in our national finances”.
“That means decisions of eye-watering difficulty.”
In response to the chancellor’s new strategy, financial markets - which had been spooked by the prospect of unfunded tax cuts along with emergency interventions in the energy market and the cost of Covid-19 support - appeared to calm. The pound rose and the cost of government borrowing fell.
Mr Hunt told the Commons a new Economic Advisory Council would be formed to provide independent expert advice, alongside that from the Office for Budget Responsibility.
Asked if he would introduce a “proper” windfall tax on energy companies, Mr Hunt said he was “not against the principle” of taxing profits that are “genuine windfalls”, adding that “nothing is off the table”. Ms Truss had previously ruled out a further windfall tax on energy companies.