LONDON —
The
British government on Monday axed almost all of its debt-fuelled tax cuts
unveiled last month to avert fresh markets chaos, in a humiliating climbdown
for embattled Prime Minister Liz Truss.
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The shock move by
new finance chief Jeremy Hunt, parachuted into the job on Friday to replace
sacked
Kwasi Kwarteng, leaves Truss’ position in a precarious state after a
series of embarrassing U-turns.
Hunt estimated
the tax changes would raise about £32 billion per year, after economists
estimated the government faced a £60-billion black hole. He also warned of
tough spending cuts.
The Chancellor of
the Exchequer said no government could control markets — but stressed his
action would give certainty over public finances and help secure growth.
“We will reverse
almost all the tax measures announced ... three weeks ago,” Hunt said in a
televised statement, conceding last month’s budget from his predecessor had
harmed the public purse.
“The most
important objective for our country right now is stability,” he added in a
contrite statement, ahead of setting out further details in parliament later
Monday.
U-turns
Hunt scrapped plans to axe the lowest rate of income tax, and curbed the
government’s flagship energy price freeze — pulling the plug in April instead
of late 2024.
After April, his
department will “review” its energy support package, he said.
A proposed
reduction in shareholder dividend tax was also binned, along with planned
tax-free shopping for tourists and a freeze on alcohol duty.
The announcement
comes as Truss’ governing Conservative party tanks in the opinion polls amid
the reversals and Britain’s worsening cost-of-living crisis.
Truss fired her
close friend
Kwarteng on Friday after their recent tax-slashing budget sparked
markets chaos — fuelling intense speculation over her political future, one
month after taking office.
“No government
can control the markets but every government can give certainty about the
sustainability of public finances,” Hunt added Monday.
His action sent
the British pound jumping to $1.1346, while bond yields dipped.
Last month’s
notorious budget had sent bond yields spiking and the pound collapsing to a
record dollar-low on fears of rocketing UK debt.
‘Difficult decisions’
Tax reductions were the centerpiece of the ill-fated budget, but they
were financed via huge borrowing.
Truss had already
staged two embarrassing budget U-turns, scrapping tax cuts for the richest
earners and on company profits.
“There will be more difficult decisions I am afraid,
on both tax and spending, as we deliver our commitment to get debt falling as a
share of the economy over the medium term,” Hunt added Monday.
“All departments
will need to redouble their efforts to find savings, and some areas of spending
will need to be cut.”
Hunt already
stated that he was not taking anything off the table amid speculation of
cutbacks on areas like defense, hospitals, and schools.
The budget furor
has reportedly sparked a plot to oust the prime minister.
UK media reported
that senior Conservative members of parliament were plotting to unseat Truss,
aghast at the party’s performance since she replaced scandal-hit Boris Johnson
on September 6.
‘Death knell’
Monday’s latest massive U-turn comes after Truss was elected Tory leader
on a tax-slashing platform that analysts dubbed “Trussonomics”.
“That sound you
can hear is the death knell for
Trussonomics, with the vast majority of her tax
cutting plans now consigned to the bin,” said Laura Suter, head of personal
finance at stockbroker AJ Bell.
“People have had
yogurt in their fridge that’s lasted longer than some of the government’s
planned tax cuts,” she added.
In two weeks’
time, Hunt will unveil his medium-term fiscal plan alongside independent
economic forecasts from the Office for Budget Responsibility.
But the main
opposition Labour party, riding high in the polls, said the ruling Tories had
“lost all credibility”.
“All the
chancellor’s statement underlines is that the damage has been done,” said its
shadow finance minister Rachel Reeves.
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