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On Monday, the British Tory government reversed nearly all of its fiscal plan presented on September 23 in order to regain the markets’ confidence, although this change of course weakens the leadership of PM Liz Truss.
Truss, who faces calls for her resignation from within and outside her party, joined her new finance minister, Jeremy Hunt, in the House of Commons, who reversed most of the tax cuts with which his boss wanted to encourage growth.
Hunt, who last Friday replaced Kwasi Kwarteng, removed after the fiasco of the initial economic strategy, acknowledged that he has had to make “difficult” decisions and indicated that cuts in public spending are on the horizon in order to reduce the accumulated net debt in the medium term.
In an effort to soothe the markets at their opening on Monday, the Chancellor of the Exchequer previewed in the morning the changes he plans, which include forming an economic council that will advise the government.
Liz Truss 180 degree turn
Hunt repealed the planned reduction from 20% to 19% from April of the basic income tax band, after the 45% to 40% reduction in the high income tax band had already been eliminated in early October.
Energy bill capping grants for households introduced this month that were to last for two years will also be curtailed at the start of the new fiscal year in April, he said.
Hunt warned that the planned 1.25 percentage point cut in dividend tax as well as VAT-exempt purchases for foreign visitors will also be canceled as part of changes that are, he said, worth £32 billion (€37 billion) a year.
In announcing Kwarteng’s departure on Friday, Truss already reversed his decision to freeze corporate income tax, which will now rise in April from 19% to 25%, except for small companies, as the previous government had mandated.
From his predecessor’s plan, Hunt retains only the freeze on social security contributions and the rebate on the home purchase tax, because the corresponding legislation had already been passed.
The pound rose and interest rates on UK government bonds have fallen after the minister’s statement dismantled Truss’s “growth plan”, whose political future, if she does not resign, is now in the hands of her party.
The new Chancellor of the Exchequer will present his full economic plan on October 31, accompanied by official growth and deficit forecasts, with which he hopes to restore market confidence.
