New UK finance minister reverses tax plan

William Schomberg and Kylie MacLellan and William James | October 17, 2022

Britain’s new finance minister Jeremy Hunt has sought to rebuild investor confidence in the UK by reversing nearly all of Prime Minister Liz Truss’s mini-budget and reining in a vast energy subsidy plan.

Tasked with halting a bond market rout that has raged since the government announced huge unfunded tax cuts on September 23, Hunt said the country now needed to increase taxes and cut spending to rebuild stability and confidence.

The former health and foreign minister has now reversed nearly all of the program that helped Truss win the leadership of the ruling Conservative Party just over a month ago, leaving the prime minister fighting for her future.

A two-year energy support scheme for households and businesses, expected to cost more than STG100 billion ($A180 billion), will now end in April and be replaced by a more targeted scheme that will “cost the taxpayer significantly less than planned”.

The pound soared by as much as 1.4 pere cent to a session high of $US1.1332, after the statement. It was last up just under 1 per cent broadly where it was just before the announcement.

British government bonds rallied aggressively on Hunt’s statement and looked on course for one of their biggest daily price increases since records began.

“We will reverse almost all the tax measures announced in the Growth Plan three weeks ago that had not started parliamentary legislation,” Hunt said.

He said changes to planned tax cuts would raise STG32 billion ($A57.6 billion) every year.

“I remain extremely confident about the UK’s long term economic prospects as we deliver our mission to go for growth,” Hunt said in a televised clip. “But growth requires confidence and stability, and the United Kingdom will always pay its way.”

The government has been forced to reverse course after markets reacted violently to Truss’s plan, hammering the value of the pound and government bond prices and forcing the Bank of England to intervene to protect pension funds.

Adding to the pressure, the Bank stuck to its schedule of ending the support on Friday, meaning Hunt had been racing to reverse policies and find spending cuts to appease the markets and prevent borrowing costs from rising further on Monday morning.

He said government spending cuts would be required to narrow a hole in public finances that the Sunday Times reported was as big as STG72 billion.

Truss said on Monday the government was charting a new course for growth, as she emphasised the need for stability after Hunt reversed nearly all of his predecessor’s mini-budget.

“The British people rightly want stability, which is why we are addressing the serious challenges we face in worsening economic conditions,” Truss said on Twitter.

But the near total reversal of the economic plan leaves Truss struggling to retain credibility. Her about-turn has angered those lawmakers who supported her, and further encouraged those who opposed her to try to find a way of getting her out of power.

The fourth British prime minister in six years, she was only formerly appointed to the role on September 6.

Already a handful of her lawmakers have said she must go. Rachel Reeves, the finance spokesperson for the opposition Labour Party, said the Conservative government was no longer capable of providing stability.

“The Conservatives have lost all credibility,” she said.

The new finance minister would still deliver a fuller medium-term fiscal plan as scheduled on October 31.