Jeremy Hunt, the new UK chancellor, has junked the bulk of his predecessor Kwasi Kwarteng’s tax cuts in an effort to calm markets.
The chancellor is reversing almost all tax measures announced in the growth plan three weeks ago that have not started parliamentary legislation, he has just said in a video statement a few minutes ago.
The move is part of prime minister Liz Truss’s battle for political survival as leading business figures and Conservative MPs pile pressure on her to resign.
“We will continue with the abolition of health and social care levy and the stamp duty change, off payroll working reforms, the new VAT-free shopping scheme for non-UK visitors and the freeze on alcohol duty rates,” Hunt said.
Following conversations with the prime minister, the chancellor has taken these decisions to ensure the UK’s economic stability and to provide confidence in the government’s commitment to fiscal discipline. The chancellor made clear in his statement that the UK’s public finances must be on a sustainable path into the medium term.
Today’s announcement represents another down payment following the reversal of the corporation tax cut announced on Friday 14 October by the prime minister. The chancellor will publish the government’s fiscal rules alongside an OBR forecast, and further measures, on 31 October.
In his statement the chancellor announced a reversal of almost all of the tax measures set out in the Growth Plan that have not been legislated for in parliament. The following tax policies will no longer be taken forward:
- Cutting the basic rate of income tax to 19% from April 2023. While the government aims to proceed with the cut in due course, this will only take place when economic conditions allow for it and a change is affordable. The basic rate of income tax will therefore remain at 20% indefinitely. This is worth around £6 billion a year.
- Cutting dividends tax by 1.25 percentage points from April 2023. The 1.25 percentage points increase, which took effect in April 2022, will now remain in place. This is valued at around £1 billion a year.
- Repealing the 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) from April 2023. The reforms will now remain in place. This will cut the cost of the government’s Growth Plan by around £2 billion a year.
- Introducing a new VAT-free shopping scheme for non-UK visitors to Great Britain. Not proceeding with this scheme is worth around £2 billion a year.
- Freezing alcohol duty rates from 1 February 2023 for a year. Not proceeding with the freeze is worth approximately £600 million a year. The next steps of the Alcohol Duty Review announced in Growth Plan 2022 will continue as planned. The alcohol duty uprating decision and interactions with the wider reforms to alcohol duties under the Alcohol Duty Review will be considered in due course.
This follows on from the previously announced decisions not to proceed with the Growth Plan proposals to remove the additional rate of income tax and to cancel the planned increase in the corporation tax rate.
Taken together, these changes are estimated to be worth around £32bn a year.
The government’s reversal of the National Insurance increase and the Health and Social Care Levy, and the cuts to Stamp Duty Land Tax, will remain benefitting millions of people and businesses. The £1m Annual Investment Allowance, the Seed Enterprise Investment Scheme and the Company Share Options Plan will also continue to further support business investment.
Energy bills support review
The government has announced unprecedented support within its Growth Plan to protect households and businesses from high energy prices. The Energy Price Guarantee and the Energy Bill Relief Scheme are supporting millions of households and businesses with rising energy costs, and the chancellor made clear they will continue to do so from now until April next year.
However, looking beyond April, the prime minister and the chancellor have agreed that it would be irresponsible for the government to continue exposing the public finances to unlimited volatility in international gas prices. A Treasury-led review will therefore be launched to consider how to support households and businesses with energy bills after April 2023. The objective of the review is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need. The Chancellor also said in his statement that any support for businesses will be targeted to those most affected, and that the new approach will better incentivise energy efficiency.
The government is prepared to act decisively and at scale to regain the country’s confidence and trust. The chancellor stated in his speech that there will be more difficult decisions to take on both tax and spending. This means doing what is needed to lower debt in the medium term and to ensure that taxpayers’ money is well spent, putting public finances on a sustainable footing.
In light of this, government departments will be asked to find efficiencies within their budgets. The chancellor is expected to announce further changes to fiscal policy on 31 October to put the public finances on a sustainable footing.
