New UK Finance Minister Jeremy Hunt put the last elements of Prime Minister Liz Truss’s economic plan in the Westminster shredder on Monday, and warned that tax rises were on the table and and the government’s energy price guarantee would end in the spring.
In statements on television and later to parliament to reassure markets that the disastrous mini-budget of his predecessor Kawsi Kwarteng was now consigned to the bin, Hunt said the plan to cut the basic rate of income tax to 19p would be scrapped along with other measures.
The last round of u-turns were the final humiliation of Truss and her ideological belief that tax cuts would spark growth and lift Britain from the economic doldrums. She now faces an uncertain future with no effective authority after the effective dismantling of her key economic policy.
Sterling and the stockmarket both rallied slightly on the news, while bond yields, the cause of turmoil last week that threatened pension funds, fell below 4%.
Overall, the removal of most of the mini-budget measures would raise the Treasury £32bn a year by 2026/27, Hunt said, although in truth the money would have been coming in anyway before the ill-fated mini-budget co-authored by Truss and Kwarteng.
However, it was the decision to truncate Truss’s multi-billion big-ticket plan to shield consumers from soaring energy prices – ironically the one measure that had widespread electoral support – that raised eyebrows. Instead, there would be a review of the plan next April.
Truss in September refused a windfall tax on utilities, and instead introduced an annual price cap of £2,500 for the next two years. Typical household gas and electricity bills had been set to rise from £1,971 to more than £3,500 on 1 October, with the potential to reach £6,000 in January 2023, when the next price cap review was due.
“This is a landmark policy supporting millions of people through a difficult winter and today I want to confirm that the support we are providing between now and April next year will not change,” he said.
“But beyond that, the prime minister and I have agreed it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices. So I’m announcing today a Treasury-led review into how we support energy bills beyond April next year.”
He said the plan would be to “design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need”, with any support for businesses targeted to those most affected.
The news sent shares in utility shares higher as the prospect of massive profits on the back of higher prices cheered investors.
TAX RISES, SPENDING CUTS LOOM
Hunt also warned again of spending cuts and possible tax rises “as we deliver our commitment to get debt falling as a share of the economy over the medium term”.
“All departments will need to redouble their efforts to find savings and some areas of spending will need to be cut,” he said.
Other measures to fall under the knife included cuts to dividend tax rates, a relaxation of tax rules for self-employed people, VAT-free shopping for tourists and alcohol duty changes.
Truss drew further ridicule when she failed to appear in the House of Commons to answer an urgent question from Labour on Kwarteng’s sacking. Citing “urgent” business, she sent commons leader Penny Morduant in her place.
Morduant then fell into a trap set by Labour’s Stella Creasy, being forced to tell the chamber that Truss wasn’t “hiding under a desk” in response to suggestions the prime minister was cowering.
Reporting by Frank Prenesti for Sharecast.com
