Jeremy Hunt today announced plans to scrap “almost all” the tax cuts in last month’s mini-budget and curtail support for households with energy bills after April.
The new chancellor announced that the government will defer plans to cut the basic rate of income tax by 1p indefinitely given the current financial crisis. Truss had planned to cut it to 19p from next April.
Only the scrapping of the National Insurance rise, voted on by MPs last week, and the cut in stamp duty remains after Hunt scrapped reforms to dividend and IR35 taxation, VAT cuts for international tourists and a freeze on alcohol duties. The measures, combined with the earlier U-turns on corporation tax and the 45p rate of income tax, will save the government £32 billion.
He said that the energy price guarantee, which limits average energy bills to £2,500, will only be in place until April. It was intended to be in place for two years, but it will now be targeted and capped. The Treasury is carrying out an urgent review.
He says Liz Truss agreed that it would be wrong to make such a long-term spending commitment, when it is unclear what will happen to energy prices in the future.
He says there will then be a review. A more targeted system will then be put in place, he says.
Hunt said that “it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices” as he announced that the Treasury would be looking at ways to target help to those most in need.
“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,” he said.
Hunt added the measures announced today would not be the end of the cost cutting, warning of “more difficult decisions on both tax and spending” when he presents his fiscal statement at the end of this month.
Announcing that the income tax cut has been shelved, Hunt said: “At a time when markets are rightly demanding commitments to sustainable public finances, it is not right to borrow to fund this tax cut.”
Hunt stressed that “a central responsibility for any government is to do what’s necessary for economic stability” as he shredded Liz Truss’s economic policies.
“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,” he said.
We will reverse almost all the tax measures announced in the growth plan three weeks ago that have not [already started the parliamentary process].
This is the big surprise in today’s announcement. It will probably go down well with the markets. But this cuts the knees under Liz Truss. The only policy that she had left that she was about to take credit for has now gone in the shredder.
Speaking about the announcement, Shevaun Haviland, Director General of the BCC, said: “The Chancellor’s buzzword was stability. But what we’ve seen from him is a plan for today and nothing for tomorrow.
“Following the economic turmoil of the last few weeks he had to press the reset button.
“But businesses will be dismayed by the decision that looks set to strip back the energy support for firms from next April. This will be a hammer blow for many who were already worried about how they will survive.
“The government must commit to a full consultation with firms ahead of that cliff-edge to provide some certainty on where any targeted support will go. Energy costs keep business owners awake at night, alongside rising inflation and interest rates.
“Keeping support for the NICs reversal in place will be some relief for hard-pressed firms, but on its own will not be enough.
“The Chancellor has a delicate balancing act to carry out. He must restore order to the markets if he is to prevent further damage to business and consumer confidence. But if he is serious about stability and growth, he must speak to our Chamber Network to truly understand the pressures firms face.
“People run businesses and businesses rely on people. The Government is failing to fully understand that the cost of living and cost of doing business crises are two sides of the same coin. We still need a clear vision on how it will support firms and the communities that rely on them to thrive.
“It must be clear in how it plans to do this, to prove it is serious about helping businesses through the difficult months ahead. Time is of the essence.”