New finance minister Jeremy Hunt will bring forward some of the financial statement due on October 31
London (AFP) - The British government on Monday axed almost all of its debt-fuelled tax cuts unveiled last month to avert fresh markets chaos, in a humiliating climbdown for embattled Prime Minister Liz Truss.
The shock move by new finance chief Jeremy Hunt, parachuted into the job on Friday to replace sacked Kwasi Kwarteng, leaves Truss’ position in a precarious state after a series of embarrassing U-turns.
Hunt estimated the tax changes would raise about £32 billion ($36 billion) per year, after economists estimated the government faced a £60-billion black hole. He also warned of tough spending cuts.
The chancellor of the exchequer said no government could control markets – but stressed his action would give certainty over public finances and help secure growth.
“We will reverse almost all the tax measures announced… three weeks ago,” Hunt said in a televised statement, conceding last month’s budget from his predecessor had harmed the public purse.
“The most important objective for our country right now is stability,” he added in a contrite statement, ahead of setting out further details in parliament later Monday.
- U-turns -
Hunt scrapped plans to axe the lowest rate of income tax, and curbed the government’s flagship energy price freeze – pulling the plug in April instead of late 2024.
After April, his department will “review” its energy support package, he said.
A proposed reduction in shareholder dividend tax was also binned, along with planned tax-free shopping for tourists and a freeze on alcohol duty.
The announcement comes as Truss’ governing Conservative party tanks in the opinion polls amid the reversals and Britain’s worsening cost-of-living crisis.
In the wake of the earlier turmoil, the Bank of England launched emergency buying of UK government bonds
Truss fired her close friend Kwarteng on Friday after their recent tax-slashing budget sparked markets chaos – fuelling intense speculation over her political future one month after taking office.
“No government can control the markets but every government can give certainty about the sustainability of public finances,” Hunt added Monday.
His action sent the British pound jumping to $1.1346, while bond yields dipped.
Last month’s notorious budget had sent bond yields spiking and the pound collapsing to a record dollar-low on fears of rocketing UK debt.
- ‘Difficult decisions’ -
Tax reductions were the centrepiece of the ill-fated budget, but they were financed via huge borrowing.
Truss had already staged two embarrassing budget U-turns, scrapping tax cuts for the richest earners and on company profits.
“There will be more difficult decisions I am afraid, on both tax and spending, as we deliver our commitment to get debt falling as a share of the economy over the medium term,” Hunt added Monday.
“All departments will need to redouble their efforts to find savings, and some areas of spending will need to be cut.”
UK media reported that senior Conservative members of parliament were plotting to unseat Truss
Hunt already stated that he was not taking anything off the table” amid speculation of cutbacks on areas like defence, hospitals and schools.
He met over the weekend with the governor of the Bank of England, Andrew Bailey, and the head of the Debt Management Office to discuss his plans.
In the wake of the earlier turmoil, the BoE launched emergency buying of UK government bonds – a policy that ended Friday.
The budget furore has reportedly sparked a plot to oust the prime minister.
UK media reported that senior Conservative members of parliament were plotting to unseat Truss, aghast at the party’s performance since she replaced scandal-hit Boris Johnson on September 6.
- ‘Death knell’ -
Monday’s latest massive U-turn comes after Truss was elected Tory leader on a tax-slashing platform that analysts dubbed “Trussonomics”.
“That sound you can hear is the death knell for Trussonomics, with the vast majority of her tax cutting plans now consigned to the bin,” said Laura Suter, head of personal finance at stockbroker AJ Bell.
“People have had yogurt in their fridge that’s lasted longer than some of the government’s planned tax cuts,” she added.
In two weeks’ time, Hunt will unveil his medium-term fiscal plan alongside independent economic forecasts from the Office for Budget Responsibility.
But the main opposition Labour party, riding high in the polls, said the ruling Tories had “lost all credibility”.
“All the chancellor’s statement underlines is that the damage has been done,” said its shadow finance minister Rachel Reeves.