Chancellor Jeremy Hunt may pull the plug on government help with energy bills as he completes a U-turn on most of the tax cuts proposed in the recent mini-budget.
In an unprecedented announcement, he has ditched almost all the tax measures put forward by his predecessor Kwarsi Kwarteng, who resigned on Friday and is now consigned to watch the Prime Minister and Hunt unpick his push for growth.
The mini-budget was only revealed on September 23 and was followed by turmoil on the global financial markets.
Analysts and critics of Kwarteng’s plans were mortified by the extent of government borrowing he proposed to fund the tax cuts and branded the policy as unattainable. Kwarteng expected to fund his tax cuts with at least £45 billion of borrowing.
Meanwhile, as the pound plunged to a record low against the US dollar, the Bank of England stepped in with a rescue plan to buy up gilts.
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Kwarteng not going anywhere, but sacked within hours
Kwarteng and Truss both told the nation they would not dilute their plans, and Kwarteng told the world on Thursday he would still be Chancellor on Friday – but he was sacked overnight, with Hunt stepping into his role over the weekend.
On Monday, Hunt‘s morning statement was set to restore some confidence in the UK economy.
The key tax cuts expected to costs the country were unceremoniously dropped – and this is how the ashes of the mini-budget look now:
| Mini-Budget measure | Scraped or retained | |
| Corporation Tax increase from 19p to 25p | Retained | Truss dropped this last week |
| Axing 45% top rate for those earning £150,000+ | Scrapped | Kwarteng cancelled this on October 3 and the top rate of 45% remains |
| Lopping 1p off the basic rate of income tax | Scrapped | 20% rate remains |
| Duty on alcohol frozen | Scrapped | |
| VAT-free shopping for visitors to UK | Scrapped | |
| Stamp Duty boost for first-time buyers | Retained | No stamp duty due on first £425,000 of home’s value |
| Stamp duty holiday for all buyers | Retained | No stamp dirty on first £250,000 of home’s value |
| Reversal of 1.25% national insurance hike in April 2023 | Retained |
Financial help for consumers struggling to pay their energy bills has also come under review.
Truss confirmed the policy before her mini-budget, but the Chancellor has watered down the policy.
Help with energy bills under review
The energy price guarantee was expected to last two years but will be reconsidered in April.
Other key measures that were scrapped included simplification of IR35 tax rules for contractors and reducing tax on dividends to shareholders.
Lifting the cap on bonuses paid to bankers and changes to Universal Credit rules also stay.
Together, rolling back the mini-budget will save the Treasury from borrowing £32 billion.
The Chancellor said: “Any government must do what is necessary for economic stability. This is vital for businesses making investment decisions and families worried about their mortgages, jobs and the cost of living. No government can control markets, but every government can give certainty about the sustainability of public finances.
“The government has decided to make further changes to the mini-budget and to reduce unhelpful speculation about what they are, we’ve decided to release them ahead of the medium-term fiscal plan due in two weeks to provide confidence and stability
Watch Chancellor Jeremy Hunt’s speech in full
Who is Jeremy Hunt?
Jeremy Hunt, 55, is Tory MP for South West Surrey. He is married with three children. Hunt graduated from Oxford after attending Charterhouse, the public school.
HUnt has served as secretary of state for culture, media, the Olympics and sport (2010 – 2012); health (2012 – 2018); foreign secretary (2018 – 2019).
He launched a bid for the Tory party leadership in August, which was won by Liz Truss.
Find out more about Jeremy Hunt
Who’s in charge – Truss or Hunt?
Truss has suffered the ultimate political humiliation since she moved into 10 Downing Street last month.
Her bold push for growth is considered unaffordable and unsustainable by the markets and the measures in her mini-budget led to the loss of her Chancellor Kwarsi Kwarteng. Hunt has effectively torn up the mini-budget and starts from scratch with a new, less radical plan.
When asked who is in charge, Hunt diplomatically indicated the prime minister is the boss.
It’s said power is a perception. The perception in Downing Street is Truss has the title, but Hunt is the power behind her.
The coming days and weeks will show how much power Truss has and if she can survive the onslaught of criticism against her policies. Even US President Joe Biden has spoken out against them while on a walkabout visit to an ice cream parlour.
The leadership vote win should give her protection from a rerun of the poll for a year.
Meanwhile, the Tories will watch her steps carefully, wary that she may be the leader to take them in to the next election in two years.
What happens to Kwarsi Kwarteng?
THe outgoing Chancellor was in office for just 38 days – the second shortest time in the chair since the Second World War. He took the job from Nadhim Zahawi, who held the post for 63 days.
Kwarteng was sacked and replaced by Jeremy Hunt. As no Cabinet reshuffle took place, Kwarteng has not taken another job in Truss’ inner circle and takes a seat on the backbenches in the House of Commons.
How does the Bank of England fit in
The Bank of England sets the official interest rate and is independent from political influence.
The rate is a tool for managing inflation, which is running at around 10 per cent a year against a target of just two per cent.
Because the mini-budget impacted the value of the pound, the cost of government borrowing increased and the bank stepped in to raise interest rates to cool the economy. A campaign to buy government bonds was also launched to help pension funds.
Unfortunately, the Bank and Kwarteng disagreed about the government’s policy for growth, finding Truss’ plan pushed up interest rates and inflation, leaving the Bank little room to manoeuvre to calm the markets.
Hunt and bank governor Andrew Bailey spoke prior to Hunt’s repeal of the mini-budget and are said to be ‘singing from the same song sheet’.
Was the financial upheaval worth it?
No, the financial upheaval unleashed by Truss and Kwarteng has seen mortgage rates rise much higher than they need to be, while the pound has rebounded a little, the prices of UK exports are more expensive and damaging to the growth the PM wanted to boost.
The government’s fiscal policy is back where it was with Rishi Sunak sitting in 11 Downing Street and everything that’s happened meanwhile is due for the shredder.
What happens to the UK economy now?
After a brutal bruising, the economy is likely to settle, but with higher mortgage rates and prices for goods and services from abroad. This will knock-on to consumer spending, especially with uncertainty about how households will pay their energy bills after April 2023.
THe Chancellor needed to lay out precise plans about what he plans to do to revive the economy and where he will raise the money to fund his policies.