Take-home pay will go down and energy bills will go up as the Chancellor Jeremy Hunt has announced the Government will scrap plans to reduce the basic rate of income tax from 20% to 19% in April next year, a move that had been forecast would cost the Exchequer almost £5.3 billion in 2023-24.
Help with energy bills for all households will now 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. The price cap, which is keeping down energy bills, was due to last two years.
The Government will also ditch plans for new VAT-free shopping for international tourists, Mr Hunt said. Mr Hunt scrapped almost all the tax plans announced by previous Chancellor Kwasi Kwarteng just weeks ago.
Chancellor Jeremy Hunt confirmed he is ditching many of the measures in the mini-budget, including the planned cut to income tax.
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.”
The income tax move would have seen most people taking home more money in their pay packets. The energy price cap would have kept down people's gas and electricity bills.
The basic rate of income tax will remain at 20p indefinitely, Chancellor Jeremy Hunt said.
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.
But Mr Hunt said it would now stay at 20p until economic conditions allowed a reduction.
“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.”
Mr Hunt said the basic rate of income tax will stay at 20p for the foreseeable future. He said there will be a review on support for energy bills.
The government will continue with its planned cut to stamp duty and its reversal of the 1.25 percentage point increase in national insurance contributions, the chancellor said.
Mr Hunt said there will be more difficult decisions on tax and spending. He said more details would be announced in Parliament this afternoon.
Brits face paying more for booze as Chancellor Jeremy Hunt scrapped a freeze on alcohol duty.
The changes mean Brits will pay 7p more on average for a pint of beer. New Chancellor Jeremy Hunt has said his tax cut reversals will raise some £32 billion a year as part of efforts to get the public finances back on track.
In an emergency statement, he said: “The measures I’ve announced today will raise every year around £32 billion.”
The Chancellor said he remained “extremely confident” about the country’s long-term economic prospects but 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.”
Government spending in “some areas” will be cut, the Chancellor has confirmed.
Jeremy Hunt said: “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.
“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.”
Liz Truss held a political Cabinet call at 10am to discuss the decision to scrap the mini-budget measures.
The Chancellor set out the “worsening global economic situation, with interest rates rising around the world as monetary policy returns to a sense of normality”, a No 10 source said.
“Because of this, the Government is adjusting its programme while remaining committed to long-term reforms to improve growth such as investment zones and speeding up infrastructure projects.”
Jeremy Hunt is expected to meet all secretaries of state this week to decide on future spending plans which will then be submitted to the Office for Budget Responsibility on Friday.
