Jeremy Hunt announces changes to measures from mini-budget
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Described as a “de-facto Prime Minister”, he spelled out the urgent need to restore Britain’s economic credibility – before delivering his bombshell statement.
The new Chancellor said the two-year energy price freeze will only run until April, U-turned on tax cuts including 1p off the basic rate of income tax and warned of “eye-watering” cuts across government.
He also hinted the triple-lock guarantee on pensions might not be safe as he continued a wholesale clear-out of the Prime Minister’s policies. The reaction of the markets was positive as sterling rose and the rate on government borrowing steadied.
But the harsh measures are likely to leave households facing a “cliff edge” on their energy bills next Spring and a bigger tax burden. Campaigners warned the moves will lead to dismay for millions of hard-pressed people across the country.
In a bid to reassure nervous financial markets, the Chancellor announced that a planned 1p cut to the basic tax rate will be delayed “indefinitely”.
Mr Hunt said he is planning spending cuts in real terms but suggested cash budgets would not be reduced, stressing that he is not planning a repeat of post-2010 austerity.
Confirming the Energy Price Guarantee – which sees the typical bill capped at £2,500 – Mr Hunt said it will only last until April, instead of the two years originally planned by the Prime Minister. The Treasury will review how hard-up consumers should be supported from that point on, he said.
The National Insurance hike will still be scrapped and the Chancellor vowed cuts to stamp duty will stay. But all other mini-budget tax-slashing promises have been dumped.
These include scrapping the cut in VAT for foreign tourists and the move to freeze alcohol duty rates from next year. Addressing MPs in the Commons Mr Hunt also dropped the government’s opposition to a windfall tax on energy companies.
Of the £45billion of tax cuts boldly announced by Kwasi Kwarteng in the package that sparked market meltdown last month, £32billion has now been reversed. The freezing of tax thresholds combined with rampant inflation will result in Britons paying far more tax than before.
However, the respected Institute for Fiscal Studies said the figures on departmental budgets due to be announced at Halloween are likely to be “scary”, with more than half the estimated £72billion hole in the public finances still to be filled.
Mr Hunt said: “As I promised at the weekend, our priority in making the difficult decisions that lie ahead will always be the most vulnerable and I remain extremely confident about the UK’s long-term economic prospects as we deliver our mission to go for growth.
“But growth requires confidence and stability, and the United Kingdom will always pay its way. This Government will therefore make whatever tough decisions are necessary to do so.”
The Chancellor warned: “There will be more difficult decisions to take on both tax and spending. All departments will need to redouble their efforts to find savings and some areas of spending will need to be cut.”
The Chancellor said the basic rate of income tax will remain at 20p indefinitely. The rate had been due to reduce to 19p from April under Mr Kwarteng’s mini-budget, a year earlier than Rishi Sunak had planned.
But Mr Hunt said it would now stay at 20p until economic conditions allowed a reduction. He 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.” The Chancellor’s statement was the latest government effort to calm jittery markets after borrowing costs continued to increase on Friday.
It appeared to work as both the pound and the FTSE 100 rose strongly yesterday. Sterling extended gains against the dollar, and is trading above $1.14. The news also saw the interest rate – or yield – on UK government bonds fall, making government borrowing less expensive.
Intentions to reduce spending on energy support for households will have benefited from a recent slump in global gas and oil prices. Last week, European gas prices hit a three-month low amid a decline in demand from households and businesses. But campaigners have warned the move could mean people end up paying more.
Mike Foster, chief executive of the Energy and Utilities Alliance, said: “News that the energy price cap protection is coming to an end in April will surprise and worry millions of hard-pressed families.
“Together with the announcement that promised tax cuts have also been withdrawn it will heap huge financial pressure onto those already struggling to pay their bills.”
Fuel poverty charity National Energy Action said ending the energy guarantee after six months is an “almighty trade-off” and has created “huge uncertainty” for households.
Chief executive Adam Scorer said: “Households on the lowest incomes are already rationing their energy usage to dangerous levels. £2,500 is beyond their means. Many vulnerable people were holding on by their fingertips. Government has to be very, very careful it doesn’t prise them away.”
Fears were also raised over the triple lock on pensions after Mr Hunt refused to say whether he would increase the state pension by inflation from April.
Asked if he agrees with the Prime Minister that the state pension would rise with inflation in April and whether he would commit to it Mr Hunt said: “I’m very aware of how many vulnerable pensioners there are and the importance of the triple lock.
“But, as I said earlier, I’m not making any commitments on any individual policy areas. Every decision we take, will be taken through the prism of what matters most, to the most vulnerable.”
Dennis Reed, of the Silver Voices campaign group, said: “Older people will be absolutely dismayed if all the promises by prime ministers and ministers over the years on the triple lock for pensioners are ditched at the last minute because of the problems caused by the mini-Budget.”
After scrapping almost all the tax cuts in Mr Kwarteng’s disastrous mini-Budget, Mr Hunt said that the abolition of the cap on bankers’ bonuses would be among the few policies to be retained.
He said: “The policy didn’t work and we will get more tax from rich bankers with a policy we now have.”
But he dropped Ms Truss’s refusal to broaden a windfall tax on energy companies. He told MPs: “I am not against the principle of taxing profits that are genuine windfalls.”
While stressing the need to avoid driving away investment, he said that “nothing is off the table” on taxing energy companies.
In stark contrast to Mr Kwarteng, his predecessor, who attacked the “vicious cycle of stagnation” over the past decade, Mr Hunt defended the record of the Tory governments over the last 12 years.
Labour’s Rachel Reeves said: “All that is left after these humiliating U-turns are higher mortgages for working people and higher bonuses for bankers.”
The shadow chancellor added: “It is clear for all to see – the people who caused the chaos cannot be the people to fix the chaos. They are out of ideas, out of touch and out of time.”
She said of Mr Hunt: “The latest office holder has been in Cabinet for nine of the last 12 years, at the centre of a government responsible for low growth and weakened public services, and him responsible for helping run the NHS into the ground.
“He was a big part of austerity season one and now he says the cure is austerity season two.”
Responding, Mr Hunt said: “I don’t think she disagreed with a single one of the decisions that I announced to Parliament and that is important for the country and markets to know.”
And he rejected suggestions from Labour that he was planning a return to austerity, saying his budget as Culture Secretary had been cut 24 percent after 2010.
He said: “I don’t believe we are talking about anything of that scale, and it’s likely that cash spending will continue to go up.”
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