In U-turn, UK scraps tax cuts for fiscal sustainability, signals more ‘difficult decisions’: 10 points
2 min read 17 Oct 2022, 06:26 PM ISTJeremy Hunt also signalled that the consumers would shoulder more of the increase in energy prices from next April as the price cap would only run until April 2023
PremiumThe Liz Truss-led government in the United Kingdom scrapped almost all government tax-cutting plans that alarmed markets for a “fiscal sustainability" in the country. Announcing a pullback on most of Prime Minister Liz Truss’s growth program, Finance Minister Jeremy Hunt said the measures would help the government raise around 32 billion pounds ($36.2 billion) a year.
Jeremy Hunt said, “I've decided that the basic rate of income tax will remain at 20 per cent and it will do so indefinitely until economic circumstances allow for it to be cut."
In his address, Jeremy Hunt also signalled that the consumers would shoulder more of the increase in energy prices from next April as the price cap would only run until April 2023. After which, the UK government would seek ways to help the most vulnerable households.
Here’s your 10-point cheatsheet on the UK tax cut announcement:
- UK Finance Minister and Treasury chief Jeremy Hunt reversed most of an economic package announced by the Liz Truss government about three weeks ago, saying that the tax changes would raise 32 billion pounds a year in extra revenues. The recent move was to end the rout in the bond market and stabilize the shrunken economy.
- The government also announced that the government's huge energy price cap would stay in place only till April 2023. “It is a deeply held Conservative value — a value that I share — that people should keep more of the money that they earn,’’ Jeremy Hunt said, adding, “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."
- The indefinite suspension has been announced for a plan to cut the basic rate of income tax.
- Hinting at “more difficult decision" ahead, Jeremy Hunt said the priority would be the most vulnerable. “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.
- The new move by the UK government is aimed at restoring the government’s credibility for sound fiscal policy.
- Jeremy Hunt will give more details on the plans to the House of Commons and deliver a full fiscal plan on 31 October.
- The announcement reverses the measures that were announced by in PM Liz Truss’s growth program just about three weeks ago, prompting a selloff in UK assets and pushed the pound to record lows. There was no plan to detail how the government would pay for them.
- UK Prime Minister Liz Truss later fired Kwasi Kwarteng and appointed Jeremy Hunt as the new finance minister.
- The early response from investors on the new plan was positive as Pound and government bonds extended gains after the U-turn.
- The yield on 30-year gilts fell as much as 44 basis points to 4.34%, the second biggest drop on record on a closing basis. The pound rose as much as 1.4% to $1.1331, outperforming other Group-of-10 peers.
(With agency inputs)
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