Chancellor of the Exchequer Jeremy Hunt ripped up most of what was left of Prime Minister Liz Truss’s controversial economic program, scrapping tax cuts and cutting back support for household energy bills in an effort to restore order to the UK public finances.
Hunt set out £32 billion ($36 billion) of savings in response to a backlash against Truss’s plan, which spooked investors and pushed up borrowing costs. The measures were less than half of what economists say he may eventually need to put the deficit on a stable trajectory after soaring inflation and sputtering growth gutted tax revenue.
Together with earlier U-turns, the decisions reverse almost all of the £45 billion in tax cuts and giveaways Truss announced in September, raising questions about whether she can survive in office. The only major changes left from that announcement are those that are already part way through legislation, on national insurance contributions and stamp duty.
“There will be more difficult decisions, I’m 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 said Monday, adding that the priority will be on protecting “the most vulnerable.”
UK government bonds and the pound surged, with the yield on 30-year gilts falling as much as 44 basis points at one point. That would be second biggest daily drop on record if those levels continue to the close of trading.
Hunt will give further details to the House of Commons at 3:30 p.m. in London. He also intends to deliver a full fiscal plan on Oct. 31.
The chancellor’s announcement caught Truss’s team off guard, in a clear sign of how power and authority has drained away from the prime minister’s office.
On Sunday afternoon, officials in No. 10 Downing Street were telling reporters that the prime minister would meet with cabinet on Monday evening to get their input on the chancellor’s proposals. The Treasury decided it had to move more quickly.
Even basic operational arrangements show who is now in control. No. 10 was initially unable to confirm whether the usual Monday morning press briefing for reporters would take place before checking in with Hunt’s team.
Truss is still due to have dinner with her cabinet on Monday, and at 6 p.m. she will meet with the One-Nation Caucus. That’s the grouping of moderate Conservative members of Parliament that is seen as her biggest threat. Some MPs have called publicly for her to resign, and many more are plotting behind the scenes after the opposition Labour Party opened up a record lead in opinion polls.
One measure which survived the latest reversal was Truss’s decision to lift the cap on bankers’ bonuses. But her energy support program has been radically curtailed. The current price freeze, capping the average bill at £2,500 a year for two years, will be redesigned from April so that it’s more targeted at vulnerable households and will “better incentivize energy efficiency.”
Hunt’s statement included:
— maintaining the basic rate of income tax at 20% indefinitely instead of reducing it as planned, saving £5 billion
— scrapping planned cuts in dividend taxes, saving £1 billion
— maintaining alcohol duties instead of making cuts
— reinstating rules on contract workers, saving £2 billion
— removing a tax-free shopping break at a savings of £2 billion
Business groups praised the government’s effort to stabilize markets but expressed alarm about cutting measures meant to boost economic growth, especially the energy package.
“This will be a hammer blow for many who were already worried about how they will survive,” said Shevaun Haviland, director general of the British Chambers of Commerce.
