Last Friday (14th Oct) Jeremy Hunt MP was appointed Chancellor after Prime Minister Liz Truss sacked Kwasi Kwarteng from the role following sustained criticism of the government’s economic plans set out in their September mini budget. The new Chancellor has made an emergency statement in an attempt to steady the markets and instil confidence in the government, not just with the public but also within the Conservative parliamentary party.

After a number of dramatic U–turns on policy including on corporation tax, (scrapping the Johnson government’s plan to increase this from 19% to 25%), PM Liz Truss is wounded, weak and in imminent danger of being removed as Conservative leader if fortunes are not turned around very soon. The removal of the 45% top rate for high earners has also been scrapped. The situation has been magnified by some in the Conservative Party seeking her removal, with former cabinet minister Crispin Blunt MP telling The Andrew Neil show on Sunday that “the game is up.”

Urgent Question to Prime Minister

Before the Chancellor provided further information on the changes to September’s mini–budget the Speaker of the House granted the Leader of the Opposition, Sir Keir Starmer, an emergency question asking if the PM will be making a statement on the replacement of her Chancellor following the recent economic fallout.

The PM herself was not in the House of Commons to take questions with the Leader of the House Penny Mordaunt MP standing in, citing that the PM was detained on “urgent business”. Mordaunt went on to say, “The overriding priority is to restore financial stability in the face of volatile global conditions. We will take whatever tough decisions are necessary and have made changes to the growth plan”, and added that the PM was not hiding “under a desk”,

Overview of Chancellor Hunt’s statement

Ahead of the fiscal plan that is set to be released in two weeks, chancellor Jeremy Hunt has attempted to calm the waters on what has been a frantic time for the UK government.

He has scrapped nearly all tax measures that were previously announced in the mini–budget citing that any government has the responsibility to do what is “necessary for economic stability”. He states that this is vital for businesses and for families but covers himself by explaining that no government can control markets but can give “certainty” about the public’s finances.

Key Announcements and the changes

Taxes

Nearly all the tax measures announced in September’s mini–budget that have not yet started their legislative passage will be reversed, meaning that the abolition of the health and social care levy and the stamp duty changes will continue to go ahead.

Income Tax

Basic Rate

Previously announced – Cut to 19p from April 2023.

Changed – The basic rate will remain at 20% and cutting it has been put on hold “indefinitely”.

Higher Rate

Previously announced – 45% rate for earnings over £150,000 abolished in England, Wales and NI. There would be one single higher rate of income of 40% from April 2023.

Changed – The government had already U–turned on the cut of the higher rate and it is no longer going ahead.

Corporation Tax

This will not be cut and will be restored to the top rate of 25%.

Energy

The Energy Price Guarantee will only remain universal until April 2023, and after that will become targeted and capped. Hunt explained that given the volatile nature of energy prices currently, the government is unable to make long–term commitments.

A Treasury review into how the government will support energy bills beyond April 2023 will commence, with the intent to support those that need it most and will cost the taxpayer as little as possible. Support for businesses will go to those “most effected”. He also said that the “government cannot eliminate volatility in markets” but that now stability is key.

Some areas of spending will be cut, and departments will have to look at areas where they can maximise efficiency but that “tough decisions” in the future may be necessary. 

Previously Announced – The government said a typical household using both gas and electricity would pay £2,500 annually for two years. It announced this before the mini–budget.

Changed – This will only be in place until April 2023 and there will be a Treasury lead review as mentioned above.

Alcohol duty rates

This proposal to freeze alcohol duty has been scrapped.

VAT

Tax–free shopping for non–UK shoppers has been scrapped

What remains?

The following policies will continue as announced in September.

National Insurance

Reversing the 1.25%increase in National Insurance will proceed

Stamp Duty

Removing stamp duty on the first £250,000 of a property’s value will proceed

First–time Buyers

Removing stamp duty on the first £425,000 of the property’s value for first time buyers will proceed.

Political Response

Labour

The Shadow Chancellor said that “the damage has been done” and that “ordinary working people are paying the price”. She went on to say that “… all that is left is higher mortgages for working people and higher bonus for bankers”

Lib Dems

Leader of the Lib Dems Sir Ed Davy calls on the PM to apologize to the “businesses and people” of the UK for the “damage and pain” that her and her party have caused.

Sinn Fein

Minister for Finance Conor Murphy said that “Many will be worried to learn the promised help with their energy bills could soon be reneged upon as part of the Treasury review after April 2023”. He went on to say “With less than two weeks to go until the Medium–Term Fiscal Plan it is time for the Westminster Government to recognise the extreme hardship facing citizens and businesses. The most vulnerable in our society need support as do our businesses if they are to survive

DUP

Sammy Wilson MP has said in the HoC today that “The United Kingdom needs stability.” and that the “mini budget last month was flawed and badly communicated. Whilst it had some positive news for struggling working families, it failed to place a proper windfall tax on energy generators who were making massive profits. Such a windfall tax could have helped pay for some of the commitments being made. It was also a mistake to focus on banker’s bonus changes and cut the 45p tax rate.”

Commentator Responses

Institute of Fiscal Studies

The IFS director Paul Johnson has welcomed the chancellor’s intervention as a step “in the right direction”, but also say that the £32bn in extra taxation will not by itself “plug the gap” in the government’s balance sheet.

He also welcomed the Energy Price Guarantee next April. He states that “While large–scale untargeted support for households this winter was perhaps unavoidable we need to do everything possible to put in place a better designed, better targeted and less expensive scheme next year.”

Resolution Foundation

The Chief Executive of the Resolution Foundation Torsten Bell said “The Chancellor has junked Trussonomics in order to reduce the pressure on the Bank of England to raise interest rates, and on the Treasury to cut spending. He hasn’t just reversed 60 per cent of the mini–Budget’s tax cuts, he’s dumped the basic rate cut announced by Rishi Sunak and committed to rolling back support for energy bills next year.”

The Institute for Public Policy Research

The Executive Director Carys Roberts has said that “The chancellor has rightly reversed course on this governments ‘sugar rush’ mini– budget (…) now the sugar rush has turned to a crash, the danger is that the government swings the other way and prescribes austerity.”

The Centre for Social Justice

The Centre for Social justice wrote on Twitter after the chancellor’s announcement earlier today that it “….welcomes the Chancellor’s commitment today to targeting support to those most in need. They need stability as much as the markets. We trust this includes fulfilling the commitment to uprate benefits for the poorest in line with inflation.”

Unite the Union

Unite general secretary, Sharon Graham said: “For all the announced U–turns, it is really clear that this Chancellor is now preparing the country for another round of austerity. There is no suggestion here that profiteering energy companies should pay more or that city bankers should not get unfettered bonuses. When he talks about “the difficult decisions that lie ahead” this is code for ‘workers and communities will pay’.

Martin Lewis, Consumer Expert

He states that we are now “back in the position where we started” and that although Hunt has “stabilised” things with his statement this morning, there is still a long way to go. Lewis goes on to say that help with energy bills cannot just be for those who are vulnerable but will need to stretch to those on middle incomes also and reinforces his thought that there has been a “blindness” to the energy problem.