UK’s Hunt scraps nearly all government ‘tax cut’ plans
LONDON, Oct 17, (AP): UK Treasury chief Jeremy Hunt on Monday reversed most of an economic package announced by the government just weeks ago, including a planned cut to income tax.
In a bid to soothe turbulent financial markets, Hunt said he was scrapping “almost all” the tax cuts announced last month and signalled public spending cuts are on the way. He also scaled back a cap on energy prices designed to help households pay their bills. It will now be reviewed in April rather than lasting two years.
“It is a deeply held Conservative value - a value that I share - that people should keep more of the money that they earn,’’ Hunt said. “But at a time when markets are rightly demanding commitments to sustainable public finances, it is not right to borrow to fund this tax cut.”
Hunt was appointed Friday after Prime Minister Liz Truss fired Kwasi Kwarteng, who spent less than six weeks in the Treasury job. Truss and Kwarteng jointly came up with a Sept. 23 announcement of 45 billion pounds ($50 billion) in unfunded tax cuts that spooked financial markets, sent the pound to record lows and forced the Bank of England to take emergency action.
Fiscal plan
Monday’s hastily scheduled announcement came two weeks before Hunt is due to set out a medium-term fiscal plan.
The government had already ditched parts of its tax-cutting plan and announced it would make a medium-term fiscal statement on Oct. 31. But the market remained jittery, and Hunt has decided he must make a statement to calm the waters even sooner.
Hunt will also make a statement on Monday afternoon to the House of Commons.
Hunt spent the weekend in crisis talks with Truss, and also met with Bank of England Gov. Andrew Bailey and the head of the government’s Debt Management Office.
Hunt’s moves are aimed at restoring the government’s credibility for sound fiscal policy after Truss and Kwarteng rushed out a plan for tax cuts without detailing how they would pay for them.
The unfunded tax cuts fueled investor concern about unsustainable levels of government borrowing, which pushed up government borrowing costs, raised home mortgage costs and sent the pound plummeting to an all-time low against the dollar. The Bank of England was forced to intervene to protect pension funds squeezed by volatility in the bond market.
Hunt was under pressure to act before financial markets opened on Monday because the central bank’s support for the bond market ended Friday.
The early response from investors was positive.
As British Prime Minister Liz Truss struggles to retain her authority, one man is seen to be in the real position of power to restore order and credibility to the Conservative government and limit the damage caused by Truss’ economic plans.
Jeremy Hunt, named Britain’s new Treasury chief three days ago, on Monday sought to calm jittery markets and angry Conservative lawmakers as he announced he was reversing the bulk of Truss’ tax-cutting economic stimulus package, which has left the U.K. in political and financial chaos since it was unveiled three weeks ago.
Hunt, 55, on Friday became the U.K.’s fourth Treasury chief this year after Truss fired his predecessor, Kwasi Kwarteng, and ditched her pledge to scrap a planned increase in the corporation tax, a key plank of her tax-slashing plans.
A veteran Cabinet minister, Hunt has served in top government posts including foreign secretary and health secretary. He is seen as a centrist among Tories and considered an experienced “safe pair of hands” to steer the government through its current self-inflicted crisis.
It’s a remarkable return to power for a man who twice ran unsuccessfully in Conservative Party leadership contests. Earlier this year, Hunt failed to get enough votes from party members and was knocked out in the first round of the race to replace Boris Johnson as party leader and U.K. prime minister.
Hunt only secured 18 votes, far short of the 30 required to progress in the contest. He later gave his backing to Truss’ rival, Rishi Sunak, who came second in the race.
He also ran against Johnson in the Conservatives’ 2019 leadership contest. In that race, Hunt sought to bill himself as the “serious” candidate in contrast to Johnson, but he lost heavily and was dumped from the Cabinet.
One decisive factor in his defeat was that Hunt had backed the losing “remain” side in the 2016 Brexit referendum on leaving the European Union - a position that became politically untenable in the right-leaning, Eurosceptic party.