Jeremy Hunt: Chancellor reverses tax cuts and scales back energy bills support - emergency statement explained

Jeremy Hunt has scaled back support for household energy bills and ditched tax cuts promised by his predecessor Kwasi Kwarteng

Chancellor Jeremy Hunt has announced plans to reverse “almost all” of the tax cuts announced in his predecessor’s mini-budget and is scaling back support on energy bills.

In an emergency statement on Monday, the new Chancellor said a 1p cut to income tax will be delayed “indefinitely” until the UK’s finances improve, instead of being introduced in April 2023 as previously announced in Kwasi Kwarteng’s mini-budget.

Hunt, who was only appointed as Chancellor on Friday (14 October), said the government’s energy price guarantee will only be universal until April - not for two years as originally planned.

The support will end in April after which time the government will look to target help for those most in need, he said.

The statement came following conversations with Prime Minister Liz Truss over the weekend and a meeting with the governor of the Bank of England and the head of the Debt Management Office on Sunday evening. Today’s announcement is designed to “ensure sustainable public finances underpin economic growth”, The Treasury said.

Chancellor Jeremy Hunt has announced plans to reverse “almost all” of the tax cuts announced by Kwasi Kwarteng (Photo: PA)

What did Jeremy Hunt announce in his statement?

Hunt has dramatically scaled back support for household energy bills and ditched tax cuts promised by his predecessor in a bid to restore stability following weeks of turmoil on the financial markets.

The Chancellor said the energy price guarantee – which had been due to cap prices for two years – will end in April, after which the government will look to target help for those most in need.

In a statement, he 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 and 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.”

Loading....

Hunt also said he is abandoning plans to cut the basic rate of tax by 1p, which had been due to be brought forward to April, and that it would remain at 20p in the pound until the country can afford to reduce it.

The cut in dividend tax promised by Kwarteng will also go, along with VAT-free shopping for overseas tourists, the freeze on alcohol duty, and the easing of the IR35 rules for the self-employed.

Hunt said the tax measures alone will bring in £32 billion after economists estimated the government is facing a £60 billion black hole in the public finances. He also warned of more “tough” decisions to come, stating: “Governments cannot eliminate volatility in markets but they can play their part and we will do so.”

The plans to reverse the increase in national insurance contributions and a reduction in stamp duty will continue to go ahead as planned and are already going through Parliament.

The Chancellor is expected to meet all secretaries of state this week to decide on future spending plans which will then be submitted to the Office for Budget Responsibility on Friday.

The pound has strengthened and UK government bonds have rallied further as Hunt made his announcement, with sterling rebounding by more than 1.2% to 1.139 against the US dollar shortly after and yields on 30-year government bonds, or gilts, eased back further by around 10%.

In response to today’s statement, IPPR North said: “Despite the government now going into hard reverse on most of its plans, they’re still not clear on whether they can stick to the basics.

“Promises like the delivery of Northern Powerhouse Rail in full, and investment in our vital public services must not be rolled back. This would be devastating to communities across the North and totally undermine the UK economy.

“This is the moment for clarity, stability and shoring up commitments that protect the most vulnerable, across the whole country, whilst the wealthiest should step up – we are yet to see such assurances”.

Elsewhere, Unite general secretary Sharon Graham said: “For all the announced U-turns, it is really clear that this Chancellor is now preparing the country for another round of austerity.

“There is no suggestion here that profiteering energy companies should pay more or that city bankers should not get unfettered bonuses. When he talks about “the difficult decisions that lie ahead” this is code for ‘workers and communities will pay’. “

Is Liz Truss expected to last as PM?

The measures come as Liz Truss continues to fight to hold on to her leadership, with three Conservative MPs already breaking ranks to call on her to go.

Crispin Blunt, Andrew Bridgen and Jamie Wallis all called on the Prime Minister to quit on Sunday (16 October), while other senior figures within the parliamentary party expressed deep unease with Truss’s leadership but stopped short of calling for her to go.

Blunt was the first MP to demand her exit, telling Channel 4’s Andrew Neil Show on Sunday: “I think the game is up and it’s now a question as to how the succession is managed.”

It came at the end of another extraordinary weekend in British politics, that saw Kwarteng sacked as Chancellor and US President Joe Biden intervene to call Truss’s economic vision a “mistake”.

Hunt, who carried out something of a media blitz on behalf of Truss over the weekend, insisted that she was still in charge even as he diagnosed the need for a tough package of tax rises and spending cuts in order to steady the UK economy.

Penny Mordaunt also offered the Prime Minister her full support, using a piece in the Telegraph to warn that the UK “needs stability, not a soap opera”. She told colleagues that the “national mission” is clear but said it “needs pragmatism and teamwork”.

Hunt told the BBC’s Sunday With Laura Kuenssberg programme that Truss remains “in charge” and insisted voters can still put their faith in her.

He said: “She’s listened. She’s changed. She’s been willing to do that most difficult thing in politics, which is to change tack.

“What we’re going to do is to show not just what we want but how we’re going to get there.”

Tory MP Robert Halfon, chairman of the Commons Education Committee, appeared on Sky News and declined to deny that MPs are considering installing a new leader.

He said: “We’re all talking to see what can be done about it. Over the past few weeks, the government has looked like libertarian jihadists and treated the whole country as kind of laboratory mice.”

Senior Conservative Alicia Kearns also told Times Radio that the question of whether Truss should continue in charge is “incredibly difficult”, while former minister Liam Fox called the current situation the “deepest political hole that we have experienced in a generation”. Stuart Rose, a Tory peer and the Chair of Asda, told the Financial Times the Prime Minister was a “busted flush”.

Meanwhile Labour leader Sir Keir Starmer called on the Prime Minister to appear before the Commons on Monday and quipped that Truss is now “in office but not in power”.

It comes as a new poll, first published in the Guardian, predicted a landslide for Labour and wipe-out for the Tories. The poll, by Opinium for the Trades Union Congress and using the MRP method to estimate constituency-level results, put Labour on 411 seats compared to the Tories on 137.

Downing Street sidestepped questions on whether Truss will be resigning and said the Prime Minister remains “focused on delivery”.

Asked about the possibility, her official spokesperson told reporters: “You heard from the Prime Minister on Friday. She’s working very closely with the Chancellor and they discussed the package which the Chancellor is setting out today. As she said on Friday, she is focused on delivery.”

Pressed on what is left for Truss to deliver on given the ripping up of her leadership campaign promises, the official said she and Hunt “agree that it’s vitally important” that she delivers on her mission for “going for growth”, including investment zones and boosting the UK’s energy supply.

Liz Truss still believes in the importance of growing the economy despite the ripping up of her tax-cutting plans, Downing Street has insisted.

Asked how she can still claim this given the threat of recession and slowing growth, her official spokesman said: “The Prime Minister does still – and Chancellor – very much believe that its growth is vitally important to the United Kingdom.”

Challenged over the markets’ loss of faith in her, the official added: “The Prime Minister and the Chancellor agree on the importance of economic stability. That’s why they have made this decision that the Chancellor is setting out today. But they still fundamentally believe in the importance of boosting growth.”

The spokesman refused to pre-empt the Chancellor’s statements to the Commons later on Monday and on 31 October, but stressed that “we are introducing a number of supply-side measures alongside that”.