Following the appointment of the new Chancellor, Jeremy Hunt delivered an economic statement earlier this week, reversing much of the Prime Minister's tax cuts.
Among the announcements made by Mr Hunt on Monday, he announced that a previous pledge to freeze yearly household energy bills at £2,500 will no longer be guaranteed for every Brit. He noted that the 'Energy Price Guarantee" will only be provided to the poorest households after April.
It means that many households will lose one of the few assurances they had when tackling the cost of living crisis plaguing the country. It comes after the Chancellor desperately tried to stabilise the markets which took a devastating blow following the announcement of his predecessor's mini-budget, the Mirror reports.
Mr Hunt's economic statement has now been marked as one of the biggest U-turns in British political history, with the Chancellor backtracking on nearly every single one of his Prime Minister's policies from the mini-Budget.
What was announced?
Initial plans for a £1bn cut in dividend tax and £2bn VAT-free shopping for visitors to the UK have been abandoned. Meanwhile, plans to cut Income Tax from 20p to 19p for every pound have also been scrapped.
Furthermore, a £600m freeze on alcohol duty was also left to the wind. In fact, only three major announcements from the mini-Budget will remain in place:
- A cut to Stamp Duty
- A cut to National Insurance from April
- A £1m annual investment allowance
The Treasury also confirmed that wealthy bankers will still be allowed to receive unlimited bonuses with the cap being removed.
How will the government's U-turns affect me?
Q: Will my energy bill jump next April?
A: Not for everyone - but for many, yes. The government has decided to cut back on its promise to completely freeze energy prices for everyone for two years.
Instead, it will now remain in place for the whole country for a mere six months. After April, the Treasury will only provide "support for those in need".
However, this is a broad and vague statement and doesn't provide clear criteria for who will receive the energy bill freeze.
Q: Will mortgage rates keep rising?
A: Bond yields - which influence mortgage rates - dropped a bit over the weekend, easing the pressure on government borrowing.
Ray Boulger, senior mortgage technical manager at experts John Charcol, said: “I think mortgage fixed rates are close to a peak and we will start to see rates falling by next week. Therefore anyone who can wait should talk to their broker now so they are ready but delay choosing a lender and rate.”
Q: But will the Bank of England still hike interest rates?
A: While this is extremely likely, it may not be as bad as initial fears.
Markets are currently pricing in faith that the Bank's base rate will rise from the current 2.25 per cent to 3 per cent in early November, however this could still rise to 3.25 per cent.
Some economists also believe that it will peak at around 4.5 per cent when it had been expected to reach 4.75 per cent or higher.
Q: Is all the drama in the financial markets over?
A: It is still to early to provide a definitive answer. The uncertainty and chaos currently experienced will likely be more balanced out following the Chancellor's Budget on October 31.
The Budget will likely include cuts to spending and will provide analysis from the Office for Budget Responsibility, something that wasn't provided alongside the mini-Budget.
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