The new British finance minister announced a comprehensive withdrawal of the British government’s tax and spending plans on Monday. with an effort to jittery market and restore the credibility of the government.
Jeremy Hunt, just four days into work, said he would lift the tax measure.(UK Treasury Secretary Teases Truss’ Economic Plans) “Almost all” announced three weeks ago by his predecessor. The dramatic reversal would add 32 billion pounds ($36 billion), he said.
The proposed reduction in the basic income tax rate from April 2023 has been postponed “indefinitely” and while the government has said it will continue to guarantee energy prices for households and businesses through the winter. will not commit to a price limit beyond next spring.
“No government can control the market. But every government can provide certainty about the sustainability of public finance,” Hunt said. “The UK will always pay its way.”
number of moves to Prime Minister Liz Truss’ flagship “growth plan” has left her in perilous political position.
The opposition Labor Party said Hunt’s statement highlighted how the government has made life harder for everyday people. As mortgage rates and other borrowing costs have skyrocketed in recent weeks.
“All the prime minister’s statements emphasize that the damage has already been done,” said MP Rachel Reeves. Tweet.
The announcement eased panic in financial markets on Monday. British government bonds rose And the pound rose 1.2 percent to $1.13, the 30-year British Treasury yield moved in reverse. It dropped to 4.37% after rising above 5% last week. Ten years of borrowing costs dropped below 4%.
However, investors are still exposed to risks. Although Hunt’s policy announcement could send a “relief rally” in the short term, significant volatility is likely to persist, said ING strategist Francesco Pesole.
On Friday, Truss fired her former Finance Minister Kwasi Kwarteng. and reinstating massive tax increases for companies But those moves failed to satisfy investors worried about the government’s financial state.
Truss faces serious questions as to whether she can continue working after financial markets reject a problematic economic offer. which aims to boost growth by reducing taxes and increasing borrowing.
Her government is under immense pressure from investors and other Conservative Party members. since that effort was revealed in late September. While the trust has walked back several measures. including a plan to reduce income tax rates for the highest earners Failed to restore confidence.
over the last weekend U.S. President Joe Biden said he thinks Truss’ trickle economy plan “It was a mistake”
“I don’t agree with this policy,” he said, adding that “It is up to the UK to decide this.”
The Treasury said Hunt met with the Bank of England governor and head of the debt management office on Sunday night to finalize his plans. He will share more information with parliament on Monday.
Plans that have already begun to pass by Parliament This includes the home purchase tax cuts will continue.
But the government will keep the base income tax rate at 20% “until the economy allows reductions”, saving £6 billion a year. Other tax cuts include the dividend tax cuts and the introduction of a new tax-free shopping program for non-UK visitors to the UK. was also cancelled.
“The government’s primary responsibility is to do what is necessary for economic security,” Hunt said.
The Treasury will lead an investigation to ease the pain of exorbitant energy costs in April 2023, although guarantees remain for the next six months.
The government said in September that UK households would typically pay no more than 2,500 pounds ($2,825) a year for their energy over the next two years.
“Looking beyond April The Prime Minister and Prime Minister agree that it is not responsible for the government to continue to expose public finances to the unrestricted fluctuations in international gas prices,” the Finance Ministry said in a statement.
Paul Johnson, director of the Institute for Fiscal Studies think tank, tweeted that an April review of energy support methods was “Too long overdue”
“It is always wrong to promise untargeted, universal and hugely expensive subsidies for two years,” he said. “It might be the only option in the short term. But it is worth spending a lot to improve in the long run.”
But campaigners worry that people will not be able to pay for heating is more important. It underscored the difficult decisions that policy makers face.
“The country is facing the edge of the financial cliff in April. because there are plans to end other support,” said Simon Francis, coordinator of the End Fuel Poverty Coalition, a civil society group. said in a statement “The edge of this cliff is even steeper.”
The Treasury secretary’s full mid-term budget will continue to be submitted on October 31, alongside a review of government growth and spending plans by the UK’s Budget Office. Budget Responsibility Office.
Investors were keeping a close eye on the bond market on Monday. After the Bank of England ended its £65bn emergency purchase program on Friday. which is intended to help temporary pension funds affected by market volatility.
Meanwhile, the central bank ultimately bought less than £20 billion in government debt. The intervention announced on Sept. 28 helped reassure the bond market as the bond market declined.
The Bank of England said on Monday that its operations “This has significantly increased the flexibility of the business sector.”