New Chancellor reverses almost all tax cuts from mini budget
Jeremy Hunt has scrapped a planned fall in income tax
Last updated 17th Oct 2022
The new Chancellor Jeremy Hunt has announced a U-turn on almost all of the tax reforms set out in the mini-budget, including the planned cut to income tax.
In an emergency statement he said: “We will reverse almost all the tax measures announced in the growth plan three weeks ago that have not started parliamentary legislation."
Kwasi Kwarteng had brought forward a drop in the basic rate of income tax to 19%, but today Jeremy Hunt said that would no longer happen, saying the basic rate of income tax would stay at 20% until economic conditions allowed a reduction.
Mr Hunt said: “It is a deeply held Conservative value – a value that I share – that people should keep more of the money that they earn.
“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.”
While much of the mini budget has been scrapped, some measures survived. The 1.25 percent cut in National Insurance will still come into effect from next month. In addition, both, the cancellation of the Health and Social Care levy and the cut to Stamp Duty also survived.
Energy price guarantee
The Chancellor also said the Energy price guarantee, which is designed to help families pay their bills through the Winter will not carry on past April.
In an emergency statement, the new Chancellor said: “The biggest single expense in the growth plan was the energy price guarantee.
“This is a landmark policy supporting millions of people through a difficult winter ad today I want to confirm that the support we are providing between now and April next year will not change.
“But beyond that, the Prime Minister and I have agreed it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices.
“So I’m announcing today a Treasury-led review into how we support energy bills beyond April next year. The objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.
“Any support for businesses will be targeted to those most affected and the new approach will better incentivise energy efficiency.”
Full statement in the Commons later
New Chancellor Jeremy Hunt has said his tax cut reversals will raise some £32 billion a year as part of efforts to get the public finances back on track.
A full statement will now be made at the House of Commons later this afternoon.
The Chancellor met with the Governor of the Bank of England and the Head of the Debt Management Office last night to brief them on these plans.
Financial markets this morning responded positively to news of a government u-turn, with the pound rebounding and government borrowing costs falling.
Liz Truss makes economic changes
Prime Minister Liz Truss sacked her first Chancellor, Kwasi Kwarteng on Friday following a week of market turmoil.
The former chancellor's mini-budget announced significant unfunded tax cuts, which caused a run-on sterling and pushed government borrowing higher.
As a result of what the government called a ‘mini budget’ hundreds of mortgage deals were pulled from the market and interest rates on new mortgages went up.
Some U-turns have already been made by the government u-turn on some of the unfunded tax cuts, including a reversal of tax cuts for the wealthy and a cut in corporation tax.
Cost of living crisis
Interest rates and inflation go up
Inflation rose by 8.8% in the 12 months to January 2023, down from 9.2% in December 2022. With interest rates also rising to 4%, those saving money will earn more interest on their finances, whilst those paying mortgages would pay more interest to the bank.
Energy bills
The price of energy went up incredibly as the cost of living crisis hit, with the gas price spike caused largely by the war in Ukraine. The price cap - which is set by an independent regulator to help offset costs onto customers - was set to rise to £3,549 for an average home in October but a price freeze from the government restricted the typical bill to £2,500. That's still an increase of 27% from the previous energy cap and as it's a cap on unit cost, the more energy you use the higher your bill will be.
Food prices
The cost of a weekly shop also has gone up as a result of the cost of living crisis. As a result of the war in Ukraine, a number of products including cooking oils and wheat have been disrupted. This means that several products are now considerably more expensive, driving bills up for customers.
Prices at the pumps
The average cost of petrol has also rose to unprecedented levels. Supply lines for petrol have been thrown into doubt as a result of the war in Ukraine, as Russia is a large export partner for gas, oil and fuel. In April 2022, the average price for a litre of petrol on the forecourt was 160.2p, whilst a litre of diesel would cost 170.5p. By late June 2022 the price had risen to an average of 190.9p for a litre of unleaded and 198.9p for a litre of diesel. In March 2023 the price wass on average of 147.03 in petrol and 167.04 in diesel.
Average cost of filling up a car with petrol hits £100
On 9th June 2022, the average cost of filling up a car with petrol hit £100 for the first time ever. Diesel had already hit that milestone. It comes as the cost of fuel hit a record high of one pound eighty a litre. The 2p rise was the biggest daily jump in 17 years. Prices have dropped by at least 20p per litre since the high point.