Jeremy Hunt watered down the prime minister’s flagship energy price guarantee today as he struggles to balance the nation’s books.
The new chancellor blew up Liz Truss’s economic strategy and shelved her plan to cut the basic rate of income tax by 1p.
He announced billions of pounds worth of tax and spending changes ahead of an emergency statement to the Commons this afternoon.
He took a wrecking ball to Truss’s tax plans, reversing “almost all” the tax measures announced just a few weeks ago.
Hunt said the energy price guarantee - which capped the average household bill at £2,500 for the next two years - would only last until April.
He announced a review to look at a “new approach” to target support at those worse off after that.
Hunt only became chancellor on Friday after Kwasi Kwarteng was sacked over the political and economic chaos sparked by his disastrous mini-budget three weeks ago.
His announcement is the latest in a string of embarrassing U-turns performed by the government as it tries to convince the City that it has control of the nation’s finances.
What Did Jeremy Hunt Announce Today?
The new chancellor made two surprise announcements:
1) Income tax will not be cut at all. Not even in 2024 as had originally been planned.
2) The energy price guarantee will only apply until April 2023. Not for two years.
Truss has already been forced to axe the abolition of the 45p tax rate paid by the highest earners as well as cancelling her plan to freeze corporation tax at 19p, meaning it will rise to 25p next April.
Over the weekend, Hunt signalled the end of Truss’s entire economic strategy by admitting taxes would have to go up to plug a multi-billion pound black hole in the nation’s finances.
This morning, he scrapped plans to reduce the basic rate of income tax from 20 per cent to 19 per cent in April next year, a move that had been forecast to cost the exchequer almost £5.3 billion in 2023-24.
The rate had been due to reduce to 19p from April under Kwarteng’s mini-budget, a year earlier than Rishi Sunak had planned.
But Hunt said it would now stay at 20p indefinitely until economic conditions allow for a reduction.
In an emergency televised statement on Monday morning, Hunt 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.”
Hunt said his tax cut reversals will raise some £32 billion a year as part of efforts to get the public finances back on track.
Government spending in “some areas” is also set to be cut, triggering fears over a return to austerity.
“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.
“All departments will need to redouble their efforts to find savings and some areas of spending will need to be cut.”
In the immediate aftermath of Hunt’s statement, the pound strengthened and UK government bonds rallied further.
It comes as some Tory MPs have publicly called for Truss to go while others are understood to be plotting an attempt to oust her as prime minister.
Crispin Blunt, Andrew Bridgen and Jamie Wallis all called on the prime minister to quit on Sunday.
Meanwhile, Angela Richardson became the fourth Tory MP to call publicly for Truss to stand down saying the problems with the public finances were “100 per cent down to the prime minister”.
She told Times Radio: “I just don’t think that it’s tenable that she can stay in her position any longer. And I’m very sad to have to say that.”
Hunt’s announcement this morning pre-empts the medium term fiscal plan, which he is due to deliver on October 31.
Despite the ongoing turmoil, Hunt insisted yesterday that Truss was still “in charge” of the government.
Tory MP Robert Halfon, chairman of the Commons education committee, said the government looked like “libertarian jihadists”.
And former Tory chancellor George Osborne predicted she would be ousted by Christmas, telling Channel 4: “She is Pino, Prime Minister In Name Only, at the moment.”
Labour’s shadow chancellor Rachel Reeves said: “The damage has been done. This is a Tory crisis made in Downing Street, paid for by working people, paying higher mortgage and borrowing costs. The Conservatives have lost all credibility.
“Only Labour offers the leadership and ideas Britain needs to fix the economy and get out of this mess.”