UK Chancellor Hunt Reverses Tax Measures From 'Mini-budget'

(RTTNews) - UK's new Chancellor of the Exchequer Jeremy Hunt reversed almost all of the tax measures announced by his predecessor Kwasi Kwarteng in the 'mini-budget' on September 23, which attracted severe criticism for Prime Minister Liz Truss' government and caused a turmoil in the financial markets. "We remain completely committed to our mission to go for growth, but growth requires confidence and stability - which is why we are taking many difficult decisions, starting today," Hunt said in a speech to the House of Commons.

The chancellor scrapped the plan to cut the basic rate of income tax to 19 percent from April 2023. The government aims to proceed with the cut in due course, but this will only take place when economic conditions allow for it and a change is affordable, the HM Treasury said in a statement. The basic rate of income tax will therefore remain at 20 percent indefinitely and this is worth around GBP 6 billion a year. Hunt also abandoned the move to cut the dividends tax by 1.25 percentage points from April 2023. The 1.25 percentage points increase that took effect in April 2022 will now remain in place and is valued at around GBP 1 billion a year.

The chancellor scrapped the plan to repeal the 2017 and 2021 reforms to the off-payroll working rules, also known as IR35, from April 2023. The reforms will now remain in place and are estimated to cut the cost of the government's Growth Plan by around GBP 2 billion a year.

The government will also not proceed with the launch of a new VAT-free shopping scheme for non-UK visitors to Great Britain and this is expected to save around GBP 2 billion a year. Hunt abandoned the move to freeze alcohol duty rates from 1 February 2023 for a year and this would bring in approximately GBP 600 million a year. The government had also decided not to cut the corporation tax and to restore the 45 percent top rate of income tax for high earners.

Hunt said the energy price support that the government is providing between now and April next year will not change.

However, a treasury-led review will be launched to consider how to support households and businesses with energy bills after April 2023.

The latest "changes designed to ensure the UK's economic stability and provide confidence in the government's commitment to fiscal discipline", the HM Treasury said in a statement.

The measures announced on Monday are in addition to other reversals earlier. Prime Minister Truss had announced the reversal of the corporation tax cut announced on October 14. "Taken together, these changes are estimated to be worth around GBP 32 billion a year," the treasury said. The Chancellor will publish the government's fiscal rules alongside an OBR forecast, and further measures, on October 31, the treasury said. The UK government came under criticism from within the Conservative Party for the measures unveiled in the 'mini-budget' on September 23 at a time when the country is going through a cost-of-living crisis.

Kwarteng was removed from the post of chancellor on October 14.

Markets and observers had criticized the move to scrap the high tax rate as unfair. The pound hit a record low in the days following the mini-budget and the UK debt yields surged.

In what was seen as a rare move, the International Monetary Fund urged the UK government to reassess its debt funded tax cuts and said it "does not recommend large and untargeted fiscal packages at this juncture."

Rating agency Moody's warned the UK of a rating downgrade and S&P assigned a 'negative outlook' to the country's credit rating.

The Bank of England was forced to intervene in the gilt market to restore stability to stem the risk of contagion to the real economy. The central bank was widely expected to announced an out-of-schedule interest rate hike following the turmoil in the currency and bond markets.

After the pound hit a record low, the BoE Governor Andrew Bailey said the central bank is ready to alter its interest rates by as much as needed to bring the inflation back to the 2 percent target.

Over the last weekend, Bailey signaled that the central bank will not hesitate to raise rates aggressively to meet its inflation target.