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No income tax cut and energy price cap watered down from April as Hunt overhauls disastrous mini-Budget
17 October 2022, 11:14 | Updated: 17 October 2022, 14:00
- Jeremy Hunt reverses or waters down almost all of Liz Truss's economic growth plan
- Energy bill help will be watered down from April
- Plans to cut basic income tax to 19p from 20p per pound scrapped
- International shopper VAT exemption will go
- Alcohol duty will not be frozen
- But National Insurance contributions will not rise and stamp duty will still be cut
- Scrapping of almost all her policy ideas since becoming PM keeps Liz Truss's job in the balance
Almost all tax cuts announced by Liz Truss will be reversed by new chancellor Jeremy Hunt - who has also brought forward the end of Government help with energy bills to April next year.
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Mr Hunt said the Government wanted to give confidence to markets about the state of national finances.
He has effectively undone almost all of the measures Ms Truss announced three weeks ago, a humiliating climbdown in an embarrassing tenure at Number 10.
The flagship energy price help that Ms Truss has tried to promote as a key win during her time as Prime Minister will end in April and be replaced with more targeted help, Mr Hunt said in a statement on Monday morning.
Plans to cut the basic rate of income tax to 19% from 20% have also been shelved, saving just over £5bn, and an idea to scrap VAT for international tourists at certain stores will also not go ahead.
However, stamp duty will still be cut as planned and the 1.25% rise in National Insurance contributions will be cancelled.
Mr Hunt also said "we will no longer be proceeding with the cuts to dividend tax rates, the reversal of off-payroll working reforms introduced in 2017 and 2021... or the freeze on alcohol duty rates".
Chancellor Jeremy Hunt sets out new Medium-Term Fiscal Plan Measures
He said: "The most important objective for our country right now is stability.
"Governments cannot eliminate volatility in markets but they can play their part and we will do so, because instability affects the prices of things in shops, the cost of mortgages and the values of pensions."
And he added: "Growth requires confidence and stability and the United Kingdom will always pay its way.
"This Government will therefore take whatever tough decisions are necessary to do so."
He wants to stabilise markets after Ms Truss and her former chancellor, Kwasi Kwarteng, threw them into turmoil after a disastrous tax-cutting mini-Budget that left financiers fearing for how the Government could afford lower revenues.
The Bank of England had to step in to buy up Government bonds in a bid to ensure pension funds would not collapse.
The horrific market reaction to her mini-Budget has led to serious questions as to how long Ms Truss can stay in Number 10, and commentators have already questioned if Mr Hunt is really in power.
Already, Mr Kwarteng had to reverse the planned abolition of the 45p top rate of income tax before he got fired, and then Mr Hunt said corporation tax will be raised from 19% to 25%.
Read the Chancellor's statement in full:
A central responsibility for any Government is to do what is necessary for economic stability.
This is vital for businesses making long-term investment decisions and for families concerned about their jobs, their mortgages, and the cost of living.
No government can control markets, but every government can give certainty about the sustainability of public finances and that is one of the many factors influencing how markets behave.
And for that reason, although the Prime Minister and I are both committed to cutting corporation tax on Friday she listened to concerns about the mini budget and confirmed we will not proceed with the cut to Corporation Tax announced.
The government has today decided to make further changes to the mini budget.
And to reduce unhelpful speculation about what they are, we have decided to announce these ahead of the Medium-Term Fiscal Plan, which happens in two weeks.
I will give a detailed statement to Parliament and answer questions from Members of Parliament.
But because these decisions are market sensitive, I have agreed with the Speaker the need to give an early, brief summary of the changes which are all designed to provide confidence and stability.
Firstly, we will reverse almost all the tax measures announced in the Growth Plan three weeks ago that have not started Parliamentary legislation.
So whilst we will continue with the abolition of the Health and Social Care Levy and Stamp Duty changes we will no longer be proceeding with:
- The cut to dividend tax rates.
- The reversal of off-payroll working reforms introduced in 2017 and 2021.
- The new VAT-free shopping scheme for non-UK visitors.
- Or the freeze on alcohol duty rates.
- Secondly, the government’s current plan is to cut the basic rate of income tax to 19% from April 2023.
But at a time when markets are rightly demanding commitment to sustainable public finances, it is not right to borrow to fund this tax cut.
So I have decided that the basic rate of income tax will remain at 20% and it will do so indefinitely, until economic circumstances allow for it to be cut.
Taken together with the decision not to cut Corporation Tax, and restoring the top rate of income tax the measures I’ve announced today will raise, every year, around £32bn.
Finally, the biggest single expense in the Growth Plan was the Energy Price Guarantee.
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.
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 am announcing today a Treasury-led review into how we support energy bills beyond April next year.
The objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.
Any support for businesses will be targeted to those most affected.
And the new approach will better incentivise energy efficiency.
The most important objective for our country right now is stability.
Governments cannot eliminate volatility in markets, but they can play their part, and we will do so because instability affects the prices of things in shops, the cost of mortgages, and the value of pensions.
There will be more difficult decisions to take on both tax and spending 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.
But, as I promised at the weekend our priority in making the difficult decisions that lie ahead will always be the most vulnerable.
And I remain extremely confident about the UK’s long term economic prospects as we deliver our mission to go for growth.
But growth requires confidence and stability, and the United Kingdom will always pay its way.
This Government will therefore make whatever tough decisions are necessary to do so.