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Jeremy Hunt Says UK Faces Financial Challenges Of "Eye Watering Difficulty" After Tearing Up Budget

Jeremy Hunt issued a warning over the financial situation (Alamy)

7 min read

Chancellor Jeremy Hunt has confirmed a major overhaul of Liz Truss and Kwasi Kwarteng's "mini-Budget" to the House of Commons, including an indefinite freeze to income tax and a review of the energy support package after six months.

Speaking to MPs on Monday afternoon, Hunt confirmed the plans to reverse the majority of the mini-Budget announcements, saying any future economic plans would be led by "compassionate Conservative values".

The new Chancellor also announced a new economic policy council was being formed to help guide the government's approach, saying that four people had already been appointed, including a former Treasury official and senior figures from the banking industry.

And in a warning about the future financial situation in the UK, Hunt said there were challenges of "eye watering difficulty" facing the country.

Following questions from MPs, Hunt also appeared to suggest that staunch opposition to a windfall tax on energy firms could be reconsidered following changes to the price cap policy.

"I am not against the principle of taxing profits that are genuine windfalls," he said.

"But, in the energy industry, it is a very cyclical industry. There are businesses that have periods of feast and famine and you have to be very careful that you don’t tax companies in a way that drives away investment.

"So we have said that nothing is off the table."

The Chancellor said the decision to shred the majority of the "mini-Budget" measures would raise £32bn as he attempted to steady the UK's financial markets which have faced turbulence since Kwarteng's fiscal statement in late September.

The extraordinary U-turn is a major blow to Liz Truss's leadership, with Tory MPs facing pressure to ditch the Prime Minister just six weeks after she took over the role.

He added: "We need to do more, more quickly, to give certainty to the markets about our fiscal plans."

Hunt is still expected to set out further medium-term fiscal measures in a statement on 31 October. 

Here are the major changes to Truss's economic plans so far: 

Income Tax Rate

Two major changes to income tax rates have been scrapped since the "mini-Budget" in late September.

The first; a plan to entirely scrap the 45p top rate of tax, was ditched earlier this month following anger that the move gave a tax break to the country's highest earners.

The second; a pledge to reduce the basic rate of income tax to 19p in the pound by April 2023 was jettisoned by Hunt on Monday. Rather than set a date for when original plans can resume, Hunt said the 20p rate will remain indefinitely. 

According to the Treasury, changes to the basic rate would have meant around 31 million people would have saved an average of £170-a-year in tax, and was central to Truss's commitment to helping households keep more of their income.

But Hunt said while reducing the tax burden was a "deeply held Conservative value" the current 20p rate would remain "indefinitely" because it was needed to bring stability to the UK's finances, with Treasury forecasts suggesting the U-turn would raise £5.3bn in the financial year 2022/23.

Corporation Tax Overhaul

The second major U-turn announced by Truss just after she sacked Kwasi Kwarteng as Chancellor last week was that her plans to overhaul corporation tax were being ditched.

The proposal, which was a major plank of her leadership campaign, would have cancelled a UK-wide increase in corporation tax from 19 per cent to 25 per cent in April.

The initial rise had been announced by former-Chancellor Rishi Sunak, but Truss had pledged to ditch the increase as part of efforts to boost UK business and attract foreign investment.

Energy Bill Support

One of the most surprising announcements made by Hunt was a significant change to the government's energy support package which Truss had promised would cap prices for two years.

Instead, the current level of support will now only last until April with Hunt saying further targeted support for vulnerable households and businesses beyond that point would be announced following a "Treasury led review".

Liz Truss in Prague

The initial energy strategy – which was estimated to cost up to £150bn – was, Hunt said, "the biggest single expense in the growth plan".

He said given the economic difficulties it would "not be responsible" to expose taxpayers to "unlimited volatility" in the energy markets, and claimed the new approach would "cost the taxpayer significantly less than planned".

While the move might have helped calm financial markets concerned about the cost of the scheme, it creates further political difficulties for Truss who has repeatedly criticised Labour for its plans which were focussed on a six month support package.

Speaking at PMQs last Wednesday, Truss said: "We have taken decisive action to make sure that people are not facing energy bills of £6,000 for two years. We remember that the opposition are only talking about six months."

IR35 Rules

Hunt also tore up plans to reform the off-payroll working rules for the self-employed – known as IR35 – which currently make companies responsible for ensuring contractors working for them are paying the right level of tax.

Kwarteng said during the mini-Budget that the system created "unnecessary complexity" for businesses, but the new Chancellor confirmed the rules would remain in place.

Dividend Tax

Another measure included in the mini-Budget was that a 1.25 per cent rise in dividend rates which came into force in April would be reversed from 6 April 2023, while the additional rate applying to dividend incomes would be scrapped.

But in his statement, Hunt confirmed the 1.25 per cent rise would remain and would not be reversed as promised by Kwarteng.

Alcohol Duty Freeze

Hunt confirmed that plans to freeze duty on beer, wine, cider and spirits for a further 12 months would be scrapped.

The freeze had been sold as a boost for the hospitality and drinks industry who were concerned rising prices could damage the sector.

It means the average price of a pint of beer will increase by 7p, a bottle of wine by 38p, while a bottle of spirits will increase in price by £1.35.

What has remained?

Bankers' Bonuses

The controversial lifting of the cap on bankers bonuses was notably absent from Hunt's announcement.

The cap, which was originally brought in following the 2008 financial crash as part of efforts to curb risky short-term decisions by bankers, was scrapped by Kwarteng in a bid to make the UK more attractive to financial companies.

Because bankers' pay is dictated by individual companies the change does not directly impact the Treasury balance sheet, but the decision has already been leapt on by Labour MPs.

Describing the move as "grotesque", shadow justice secretary Steve Reed, said: "The Tories are sticking with their plan to uncap bankers' bonuses while forcing nurses to take real-terms pay cuts in the middle of a Tory cost of living crisis."

Labour MP Ian Murray added: "Their dining and champagne party friends still get what they want."


Stamp Duty Changes

The Chancellor confirmed that cuts to stamp duty would remain, partially because the legislation to secure the changes has already started moving through the Commons.

The changes mean that buyers in England and Northern Ireland will still pay no stamp duty on the first £250,000 of any property, while first time buyers will benefit from a stamp duty exemption on the first £450,000.

National Insurance

The "mini-Budget" pledge to reverse the recent rise in National Insurance will remain, again because the legislative process has started.

Both employers and employees have been paying an extra 1.25 per cent in National Insurance Contributions since April 2022, but Hunt confirmed the plans to ditch the rise from 6 November would still go ahead.

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