Chancellor Jeremy Hunt has announced a major u-turn on the mini-Budget that had been announced earlier this month. Help with energy bills for all households will only last until April and the Government is also scrapping plans to reduce the basic rate of income tax.
The new measures are part of plans to fast-track billions of pounds of savings in an attempt to get the public finances back on track and stabilise financial markets after weeks of turmoil.
Speaking on Monday morning, Mr Hunt confirmed he was ditching many of the measures in the mini-budget. He said the Government had decided to make further changes and said they were being announced today to stop speculation. He said the changes were designed to bring "confidence and stability". You can get more politics news and other story updates straight to your inbox by subscribing to our newsletters here.
In an emergency statement he said: “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 cuts 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.”
As part of the changes the Government will also ditch plans for new VAT-free shopping for international tourists, Mr Hunt said. Pressure is mounting on Liz Truss as she fights to save her premiership this week, with her fate hinging on the mood of the market and her own backbench MPs.
It comes as four members of Ms Truss's parliamentary party have already broken ranks to call on her to go, including one Welsh MP who wrote an open letter calling for her to go.
Here's how the government's financial plan announcements may affect you.
Income tax
The Chancellor announced that the government would scrap plans to reduce the basic rate of income tax from 20% to 19% in April next year. The basic rate of income tax will remain at 20p indefinitely.
The rate had been due to reduce to 19p from April under Kwasi Kwarteng’s mini-budget, a year earlier than Rishi Sunak had planned. Mr Hunt said it would now stay at 20p until economic conditions allowed a reduction.
He added: “It is a deeply held Conservative value – a value that I share – that people should keep more of the money that they earn. But at a time when markets are rightly demanding commitments to sustainable public finances, it is not right to borrow to fund this tax cut.”
The reduction would have meant a tax cut for more than 31 million people - but this will no longer be the case. Had the cut come into place in April, 2023, an average UK earner on £30,000 a year would have paid £174 less in tax next year, according to wealth managers Quilter.
But, on the other hand, a previously-announced national insurance (NI) cut will remain in place - and a £30,000 earner could still be around £218 better off annually because of this, Quilter said.
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Energy bills
Help with energy bills for all households will only last until April, with Jeremy Hunt announcing a review to look at a “new approach” to target support at those worst off after that.
Under the previously announced energy price guarantee, the average household would pay around £2,500 annually for their energy bill, although as the cost was limited per unit and not per bill, some households would pay more, depending on their energy use. The guarantee was due to last for two years.
But, on Monday (October 17), Mr Hunt said that, while the guarantee would continue until next April, a review would be launched to consider how to support households and businesses with energy bills after April, 2023. The review would design a new approach aiming to cost taxpayers significantly less than planned, while ensuring enough support for those in need, the Government said.
Any support for businesses will be targeted to those most affected and the new approach will better incentivise energy efficiency, it's suggested. Households are already receiving both widespread and targeted support to help with energy costs.
Mortgages and rents
Mortgage rates have rocketed in recent weeks amid the wider turmoil in the markets, although figures from Moneyfacts.co.uk indicate there have already been signs of mortgage rates steadying over the weekend. Monday's U-turn announcements could help to shore up market confidence, in turn helping to steady mortgage rates.
The choice of mortgage products remains significantly lower than before the mini-budget. Bank of England base rate hikes have also been pushing up mortgage rates in recent months and further base rate rises are expected. Mortgage rate hikes also feed into the costs paid by buy-to-let landlords, which could mean some have to put their rents up or even sell up if letting is less profitable. Supply shortages in the rental sector are already putting an upward pressure on rents.
Nathan Emerson, CEO of Propertymark, which represents estate and letting agents, said: "Mortgage rates were already rising and we hope the wider announcements made today will translate into a settling down of that trajectory."
Simon Gammon, managing partner at Knight Frank Finance, said: "While we don't expect mortgage rates to fall in the short term, stability in the swaps market should slow the pace of rising mortgage rates relative to some of the worst case scenarios that looked possible in the days following the mini-budget.
"Only time will tell as to whether this is a temporary reprieve, however."
Alcohol Duty
The government will no longer freeze alcohol duty rates from February 1, 2023, for a year. But the next steps of the Alcohol Duty Review announced in Growth Plan 2022 will continue as planned. The freeze being scrapped means that consumers will have to pay more for their booze. Brits will be forking out around 7p more, on average, for a pint of beer. A pint of cider will go up by around 4p, a bottle of wine 38p and a bottle of spirits £1.35.
The Scotch Whisky Association said the move would add to pressures for the hospitality industry and household budgets as costs inevitably increased.
Emma McClarkin, chief executive of the British Beer and Pub Association, said: "The Chancellor's decision today to reverse the alcohol duty freeze is a huge blow to brewers and pubs."
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