Why was most of mini-budget scrapped and what happens next?
Jeremy Hunt has said he will scrap most of the unfunded tax cuts in the mini-budget, in the latest government U-turn designed to boost the financial markets’ confidence.
Days after replacing Kwasi Kwarteng as chancellor, Hunt said he would cancel all the remaining measures in the ill-fated tax and spending plan that had not yet been legislated for. Here are the reasons why he is taking action.
Hunt said his tax changes would raise about £32bn a year, scrubbing out most of the £45bn of unfunded promises announced by Kwarteng last month. Some changes are still in place, including keeping a stamp duty cut – costing £2.1bn a year – and the reversal of the national insurance rise, which will cost about £18.7bn annually.
Cutting the energy price guarantee from two years to six months, then replacing it with more targeted support, could save the exchequer about £40bn, according to the Resolution Foundation thinktank. However, precise calculations on the savings from the energy U-turn are difficult, given that the policy costing depends on price moves in international gas markets.
The aim is to restore confidence among financial markets after the mini-budget led to a meltdown in UK government bond markets and a soaring in borrowing costs for households and businesses.
Economists said the changes could help reduce the interest rate on UK government debt ahead of the 31 October debt-cutting plan. This could allow the Office for Budget Responsibility to use the lower rates to inform its debt interest forecasts – due to be published on the same day – limiting some of the damage to the public finances.
A healthier outlook for debt interest could help reduce the need for much bigger tax rises or spending cuts to balance the books.
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