In the latest government upheaval, brand new Chancellor Jeremy Hunt has axed most of Liz Truss’s mini-budget.
Mr Hunt announced he was scrapping “almost all” of the tax cuts announced by the government last month, in a bid to stabilise the financial markets.
Mr Hunt said the planned cap on the annual cost of energy at £2,500 for a typical household for two years will be scaled back.
That pledge will now only last until April, after which a new approach will be found “that will cost the taxpayer significantly less than planned”.
A penny cut in income tax due in April will now not happen. The chancellor said the rate would remain at 20p “indefinitely until economic circumstances allow for it to be cut”.
The following tax policies will no longer be taken forward:
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- Cutting the basic rate of income tax to 19% from April 2023. While the government aims to proceed with the cut in due course, this will only take place when economic conditions allow for it and a change is affordable. The basic rate of income tax will therefore remain at 20% indefinitely. This is worth around £6 billion a year.
- Cutting dividends tax by 1.25 percentage points from April 2023. The 1.25 percentage points increase, which took effect in April 2022, will now remain in place. This is valued at around £1 billion a year.
- Repealing 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. This will cut the cost of the government’s Growth Plan by around £2 billion a year.
- Introducing a new VAT-free shopping scheme for non-UK visitors to Great Britain. Not proceeding with this scheme is worth around £2 billion a year.
- Freezing alcohol duty rates from 1 February 2023 for a year. Not proceeding with the freeze is worth approximately £600 million a year. The next steps of the Alcohol Duty Review announced in Growth Plan 2022 will continue as planned. The alcohol duty uprating decision and interactions with the wider reforms to alcohol duties under the Alcohol Duty Review will be considered in due course.
And the new chancellor made clear there will be cuts in public spending to come .
The government had already abandoned plans to scrap the 45p rate of income tax for top earners and had U-turned on a promise not to increase corporation tax.
However, he said the cuts to stamp duty paid on house purchases and the scrapping of the National Insurance rise would continue.
Mr Hunt, speaking during an emergency statement in the Commons with Ms Truss behind him, said the UK “funds our promises and pays our debts”.
He said “when that is questioned – as it has been – this government will take the difficult decisions necessary to ensure there is trust and confidence in our national finances”.
“That means decisions of eye-watering difficulty.”
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