The U.K.’s new Chancellor of the Exchequer Jeremy Hunt has scrapped the majority of the £45 billion previously announced unfunded tax cuts in an emergency statement on the mini-budget.
Hunt pulled back the government’s energy price guarantee, which was due to support households and businesses for two years. It will now remain universal until April next year, so that it will cost taxpayers “significantly less than planned.”
He said that a Treasury-led review will be created to look into how people can be supported from April onwards.
“There will be more difficult decisions I’m 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 said.
Together, the moves save some £30 billion, ahead of the official budget plan due at the end of October.
Bond yields on the 30-year gilt
— which the Bank of England was buying last week — as well as the 10-year
fell sharply on Monday, by nearly 50 basis points, while the British pound
The government had already backtracked on a plan to cut the personal tax rate of those making more than £150,000, as well as corporate taxes.
Now the chancellor also threw out plans to cut the basic rate of income tax to 19% from 20%, as well as dividend tax cuts and a freeze on alcohol taxes.
See also: Who is Jeremy Hunt? Meet the new U.K. chancellor
The tax proposals that will remain are the cuts to stamp duty on property purchases and cuts to national insurance contributions, the latter which had already been enacted into law.
As soon as he came into the post over the weekend after Kwasi Kwarteng was fired on Friday, Hunt said he would not wait until Oct. 31 to make its medium-term fiscal statement in an effort to cool down the markets.
“No government can control markets by every government can give certainty about the sustainability of public finances. And that is one of the many factors that influence how markets behave,” Hunt stated.
The Bank of England on Monday said its temporary bond purchase program ended and “as intended, these operations have enabled a significant increase in the resilience of the sector.”
Read: Why Kwasi Kwarteng could not survive the battle with the Bank of England
Market commentators have welcomed the early announcement and the bank intervention.
Ganesh Viswanath-Natraj, assistant professor of finance at Warwick Business School, said the policies can help “maintain the pound’s value as it makes sterling assets more attractive.”
“This signals to financial markets that government debt is on a sustainable path, leading to a more stable demand for gilts by investors,” he said.
Pantheon Macroeconomics chief U.K. economist Samuel Tombs said the announcement amounts to £31 billion of savings found, with “a further £40 billion or so to go.”
“For context, Mr. Hunt will have to reduce the average annual growth rate of total managed expenditure, excluding debt interest payments, over the years to 2025/26 to 1.8%, from the 2.7% rate in the mini-budget, if all of the remaining £40B savings are to be found from spending,” Tombs added.
Nick Macpherson, a former Treasury official, said on Twitter that the early statement was a good move to help the markets.
“There is no doubt this means market turmoil should lessen,” added Neil Birrell, chief investment officer at Premier Miton Investors, adding that domestic equities should benefit from the U-turn as well.
“However, political uncertainty has not gone away, but has probably increased. Furthermore, for investors outside the UK looking to commit money here, this see-sawing can’t help our case,” he added.
The U.K. FTSE 100
rose 0.8% on Monday.
U-turn on Trussonomics
The flipflopping from Liz Truss’s administration has angered political opposition, but more importantly, Truss’s own Conservative party members.
Reports from The Times note that Tory MPs in the 1922 committee -– which oversees how Conservative party leaders are chosen –- held talks on Friday night to discuss Truss’s future as prime minister.
The opposition Labour could win in a landslide in the next election, according to polling by Opinium.