Liz Truss’ grand plan to revamp the economy now lies in tatters after weeks of turmoil climaxing with a screeching U-turn and change of chancellor.
Jeremy Hunt, who was drafted in last week after Kwasi Kwarteng was ‘thrown to the wolves’, tore up ‘almost all’ of the prime minister’s flagship tax cuts in an emergency statement on Monday.
Although some of her policies survived, Mr Hunt’s statement was loaded with barbs signalling the death of ‘Trussonomics’ – the vision his boss and predecessor had for firing up the economy through unfunded tax cuts which they vowed would pay for themselves through future growth.
Here are the key measures unveiled, which Treasury officials claim will save the taxpayer £32 billion a year:
- A rise in corporation tax from 19% to 25% in April 2023, tabled by Rishi Sunak while Boris Johnson was PM but axed by Ms Truss, will now continue. Estimates suggest it will raise £67 billion over five years.
- A rise in dividend tax, also announced by Mr Sunak before being scrapped scrapped by Ms Truss, will go ahead too.
- A cut in the basic rate of income tax from 20% to 19%, which Ms Truss was wanted to bring forward from 2024, will now be deferred ‘indefinitely’.
- Mr Hunt said he shares the ‘deeply held Conservative value’ that workers should keep more of their earnings but said borrowing to fund the cut is ‘not right’ or ‘sustainable’.
- He also cancelled Ms Truss’ moves to freeze alcohol duties from February 2023, change tax rules for the self-employed and small business owners, and make more shopping for tourists VAT-free.
- Cuts to stamp duty will continue, while a 1.25 percentage point rise in National Insurance planned by Mr Sunak will still be axed as planned by Ms Truss.
Energy Price Guarantee
- The state-funded hard cap on energy bills, which came into force this month, will only cover all households until April rather than two years.
- Support will continue but will be targeted at those who are ‘most in need’, costing the taxpayer ‘significantly less than planned’ by Ms Truss.
- Mr Hunt echoed fears expressed by economists that ‘it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices’.
- Support for businessses is also set to be targeted at those who are ‘most affected’ after the winter, he added.
- The new policy will include measures that ‘better incentivise energy efficiency’, although these have not been confirmed.
- The new chancellor said ‘some areas of spending will need to be cut’, leading to ‘more difficult decisions’.
- Although there was less detail on this aspect of his plans, he insisted government debt should begin falling relative to the overall size of the economy in the ‘medium term’.
- He did not signal any intention to break with Mr Kwarteng’s plan for effective cuts to public services which some experts fear could reach up to £36 billion. Although bodies like the NHS will receive more funding over the next few years, this is not being scaled up in line with expectation-defying levels of inflation.
Mr Hunt made no suggestion of cancelling Ms Truss’ move to end the cap on bankers’ bonuses, or an expected attack on red tape affecting City firms later this year.
He did not mention plans to reduce benefits for people who fail to keep up with job-hunting requirements, or give over-50s extra support from back-to-work coaches.
A full medium-term fiscal plan will be published on October 31.
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