Britain’s government on Monday scrapped almost all of the debt-fueled tax cuts it had agreed last month to prevent fresh market chaos in a humiliating slump for Prime Minister Liz Truss.
The shock move by new finance chief Jeremy Hunt, who took over the job on Friday by parachute to replace the sacked Kwasi Kwarteng, leaves the Trust in a precarious position after a series of embarrassing U-turns.
The chancellor of the exchequer said no government could control the markets, but stressed his action would provide confidence in public finances and help deliver growth.
“The most important task for our country right now is stability,” he added in a contrite statement before giving further details in parliament on Monday.
Hunt scrapped plans to cut the lowest income tax rate and ended the government’s freeze on energy prices – pulling the plug in April rather than at the end of 2024.
Proposed dividend tax cuts for shareholders were also rejected, along with planned tax-free shopping for tourists and a freeze on alcohol duty.
Truss fired her close friend Kwarteng on Friday after their recent tax cuts in the budget sent markets into turmoil – fueling intense speculation about her political future a month after taking office.
Its action sent the British pound soaring to $1.1346, while bond yields fell.
– “Hard decisions” –
Truss has twice already made embarrassing budget reversals by reversing tax cuts for the wealthiest and corporate profits.
“All departments will have to redouble their efforts to save, and some areas of spending will have to be cut.”
He met with Bank of England Governor Andrew Bailey and the head of the Debt Management Authority over the weekend to discuss his plans.
The budget furore reportedly sparked a plot to oust the prime minister.
– “Death Bell” –
“This sound you’re hearing is the death knell for Trussonomics and the vast majority of its tax cut plans are now in the bin,” said Laura Suter, head of personal finance at stockbroker AJ Bell.
In two weeks, Hunt will present his medium-term fiscal plan, along with independent economic forecasts from the Office for Budget Responsibility.
“The chancellor’s statement only emphasizes that the damage has been done,” Shadow Chancellor of the Exchequer Rachel Reeves said.