UK’s economic policy ‘barely recognisable’ after major tax and energy U-turns

Public policy expert Mark Ferguson of Pinsent Masons said the new chancellor’s approach, unveiled in a televised statement earlier today, was the direct opposite of that taken by Kwasi Kwarteng in September. “The growth plan that the Truss government unveiled less than a month ago is barely recognisable,” he said.

It comes after Hunt said he would delay plans to cut the basic rate of income tax from 20p in the pound to 19p from April next year until economic circumstances allow it. He will also scrap plans for reduced dividend taxes, a freeze in alcohol duty and the introduction of a VAT-free shopping scheme for overseas visitors. The government will also abandon off-payroll working reforms that were designed to combat widespread non-compliance with the original IR35 rules.

In a major U-turn, the chancellor revealed that the Treasury will re-examine the prime minister’s flagship Energy Price Guarantee scheme. Universal support for household energy bills was due to last for two years but will now only last until April and will be replaced by a more targeted approach. Hunt said that energy bill support for businesses would also be scaled back from April to target those most affected.

It follows a previous U-turn on corporation tax announced by Liz Truss last week, which will see the levy rise from 19p to 25p, as originally set out by Boris Johnson’s administration. Hunt said that the planned £13 billion cut to National Insurance would remain, as well as cuts to stamp duty. In total, the government has now abandoned around £32bn of the £45bn of tax cuts announced in Kwarteng’s ‘mini budget’ three weeks ago.

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."

Ferguson said the announcement had helped to reassure markets after gilts and sterling extended their rally but warned that the risk of further turmoil was still present. “Hunt is viewed as a stabilising presence, and his statement today may have bought the government some time, but it comes amid a cloud of uncertainty over the future of the prime minister, who is being openly criticised by her party colleagues,” Ferguson said.

He added: “Businesses will be eager to see more detail of Hunt’s proposals in the fuller fiscal statement scheduled for 31 October. That statement will be backed by analysis from the Office of Budget Responsibility (OBR) – which had been a notable and controversial omission from the mini budget."