Today, the new Chancellor Jeremy Hunt made an announcement concerning the Governments tax cuts ahead of the planned statement at the end of the month. The announcement lasted just over five minutes, but that was all Hunt needed to upend the political status quo almost entirely.
Hunt announced that in pursuit of market stability, nearly all the unlegislated tax measures announced in the “mini-budget” are to be scrapped; the cut to dividend tax rates, IR35 re-reforms, the VAT-free shopping scheme for non-UK visitors, the freeze on alcohol duty rates, and the planned cut in income tax. All up in smoke.
Perhaps one of the most startling announcements was the scrapping of the planned cut in income tax, meaning that it will remain at 20p indefinitely. This is further even than Truss’s leadership rival would have gone. Sunak only wished to delay the cut, not scrap it entirely.
Some of the planned measures are still going ahead however. The energy price guarantee, capping the average bill at £2,500, will still go ahead, but instead of two years, it will only extend until April whereupon it will be reviewed.
Also, the cut to National Insurance will still go ahead, as will changes to stamp duty for first-time house buyers. Conspicuously, the cap to banker’s bonuses was not mentioned, but it is not on the list of measures being axed. If there was one measure in the “mini-budget” that I expected the Tories to protect against all others, it was this one. As my mother used to tell me; “I’m not surprised, just disappointed.”
Hunt has said that this fleet of new U-turns will raise around £32 billion for the Treasury, and will promote economic stability. The markets, for the time being, seem to be agreeing with him; upon his statement, government borrowing costs and gilt yield fell, and the pound is currently trading at about £1.13 against the dollar.
Economically, this is a sound decision from Hunt. The markets needed reassurance that the UK Government wasn’t committed to its ideological wild goose chase for growth, and that it now seeks to retain its reputation for economic prudence and responsibility. Hunt’s announcement has done some small agency to this end.
But politically, this is perhaps the biggest U-turn in UK economic history. The “mini-budget” was the platform upon which Liz Truss was made Prime Minister. It was her raison d’être for leadership, and now her own Chancellor, her second in as many months, has just trampled it into the dirt.
The priorities of this Government have changed almost unrecognisably within minutes. Truss said during Tory Conference that her three priorities for the economy were “growth, growth, and growth”, but during his announcement, Hunt said that his main priority was stability and the reduction of national debt. Whether Truss will continue to tow her own line, or start dancing to her Chancellor’s tune remains to be seen, but whichever she decides to do, it will set the tone for the rest of her premiership, however brief it may be.
This is now a zombie government a mere month after it’s appointment. Truss’s flagship policies are dead, her authority is in tatters, and most now speculate that while Truss may still live in No. 10, Hunt is now the one with the keys to the door. Not only is this humiliating for Truss and those who backed her, it is wholly undemocratic. Hunt has lost Conservative leadership races on two occasions, but he now finds himself with more power and credibility than the PM herself. How painfully ironic.
If they hadn’t just elected their fourth consecutive leader, the Tories would have booted her out of office days ago, but to bring about another leadership election a little more than a month after the last one would be electoral suicide. The Tories are finished at the next general election regardless, but sticking with Truss and just hoping is now their best chance at damage limitation.
stay safe
/e