LONDON (October 17): Chancellor of the Exchequer Jeremy Hunt tore up what remained of Prime Minister Liz Truss’ controversial economic package, scrapping tax cuts and scrapping support for household energy bills in a bid to restore order to British public finances.
After the backlash against Truss’ plan drove up borrowing costs for the UK government, the £32billion (RM170.43billion) package is less than half of what economists said that the government may need to put public debt on a stable path after soaring. inflation and sluggish growth have cut tax revenue.
Along with previous U-turns, the rulings reverse almost all of the £45billion in tax cuts and handouts Truss announced in September, raising questions about his ability to survive in office. The only major changes that remain after this announcement are those already in the pipeline, on national insurance contributions and stamp duty. Hunt said he would likely make more severe spending cuts in the coming weeks.
“There will be tougher decisions, I’m afraid, on both tax and spending as we deliver on our commitment to reduce debt as a part of the economy over the medium term,” he said. said Hunt, adding that the priority will be to protect “the most vulnerable”.
UK government bonds and the pound surged, with the yield on 30-year gilts dropping as much as 44 basis points at one point. It would be the second largest daily decline on record if debt closed at this level.
Truss’ energy support schedule has also been reduced. The current price freeze, capping the average bill at £2,500 a year for two years, will be reviewed in April, when it is redesigned to target more vulnerable households and “better incentivize energy efficiency”.
Hunt will give more details in the House of Commons at 3.30pm in London on Monday. He also intends to present a full budget plan on October 31.
The Chancellor’s announcement caught Truss’s team off guard, making it clear how much power and authority has retreated from the Prime Minister’s office.
On Sunday afternoon, No 10 told reporters the Prime Minister would host a Cabinet reception on Monday evening to get their views on the Chancellor’s proposals, before the Treasury decided to act more quickly.
Even the basic operational arrangements showed who is in control now. The No 10 was initially unable to confirm whether the usual Monday morning press briefing for reporters would take place before checking in with Hunt’s team.
Truss is still scheduled to have dinner with her Cabinet on Monday and at 6 p.m. she will meet with the One-Nation Caucus. It is the group of moderate Conservative MPs who are seen as his greatest threat. Some MPs have publicly called for his ouster and many others are plotting behind the scenes.
Hunt’s statement on Monday morning included:
• maintain the basic income tax rate at 20% indefinitely instead of reducing it as planned, saving £5 billion.
• Remove planned dividend tax cuts, saving £1 billion.
• maintaining taxes on alcohol instead of reducing them.
• The current price freeze, capping the average bill at £2,500 a year, will be reviewed in April, when it is redesigned to be more targeted.
• Restore the rules on contract workers, saving £2 billion.
• abolition of a duty-free shopping break with a saving of £2 billion.
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