Chancellor Jeremy Hunt leaves Downing Street
(Picture: PA)Jeremy Hunt has warned that “difficult choices” lie ahead for the Government amid reports that he could delay plans for a 1p cut in income tax.
The new Chancellor warned that taxes could rise and departmental budgets could be slashed as the Government attempts to restore market confidence in the UK.
Government sources told the Sunday Times that Mr Hunt could delay his predecessor Kwasi Kwarteng’s promise to cut the basic rate of income tax by a year in a bid to calm financial markets. If carried out, it would represent another u-turn for the Government after plans to cut corporation tax and the top rate of income tax were scrapped earlier this month.
The tax cut was among Prime Minister Liz Truss’ flagship policies during the Tory leadership campaign, though sources close to the Chancellor told the newspaper that swathes of the mini-Budget could be reversed by Mr Hunt to plug the shortfall in the public finances.
“He is going to be delaying tax cuts as well as overseeing more aggressive cuts to public spending — more than was previously planned,” a source said.
A Treasury spokesperson said that it could not comment on tax changes outside of a fiscal event.
In a round of broadcast interviews on Saturday morning, Mr Hunt suggested that Ms Truss’ economic plans could be upended completely to help restore stability to the markets.
“Spending will not rise by as much as people would like and all Government departments are going to have to find more efficiencies than they were planning to,” he told Sky News.
“And some taxes will not be cut as quickly as people want. Some taxes will go up. So it’s going to be difficult.”
He admitted that Mr Kwarteng and Ms Truss had made a “mistake” by cutting the top rate of tax paid by the wealthiest Britons.
“It was also a mistake to fly blind and to do these forecasts without giving people the confidence of the Office of Budget Responsibility saying that the sums add up,” he added.
Tory MPs on Saturday suggested that Ms Truss’ economic plans could be significantly altered as Mr Hunt attempts to calm the markets following weeks of volatility.
Crossbench peer Lord O'Neill told BBC Radio 4's PM programme that Mr Hunt may have been given a “carte blanche by a desperate prime minister”.
He added: “But if it turns out to be the case, that that’s not at all true, then this Government is basically finished, because as soon as the markets get wind of that they will freak out even more than they did before.”
On Friday, after three weeks of turmoil on the financial markets in the wake of Mr Kwarteng’s £43 billion mini-budget tax giveaway, Ms Truss sacked him and ditched her commitment to drop a planned rise in corporation tax from 19 per cent to 25 per cent.
Mr Hunt will meet her at Chequers on Sunday after holding talks with Treasury officials on Saturday.
In other developments, Bank of England Governor Andrew Bailey said he had spoken to Mr Hunt on Friday following his appointment.
Speaking in Washington, he said the pair had a "meeting of minds" on the issue of "fiscal sustainability" as he noted the fact the Office of Budget Responsibility is now "very much back in the picture".
“We will not hesitate to raise interest rates to meet the inflation target,” he said.
“And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”
Last month, the Bank hiked interest rates to 2.25 per cent – the highest level since December 2008 – after an earlier increase in August.
Mr Bailey said that the current economic conditions would require a “large measure of stoicism” amid the continuing fallout from the war in Ukraine, which has pushed up global energy prices.
“We should start by recognising that however difficult each of our positions is, that is nothing compared to the suffering inflicted on the people of Ukraine,” he said.
