April 14, 2024

Westside People

Complete News World

Britain’s new chancellor has scrapped nearly all planned tax cuts in a bid to appease markets

Britain's new chancellor has scrapped nearly all planned tax cuts in a bid to appease markets

Jeremy Hunt interviewing Sophie Raworth ‘Sunday Morning’ at BBC Broadcasting House in London.

Tejas Sandu | Light Rocket | Getty Images

British Chancellor of the Exchequer Jeremy Hunt used his first Monday in office to announce that nearly all of his predecessor’s controversial tax measures would be scrapped.

A major shift includes eliminating the reduction in the lowest income tax rate from 20% to 19%, as well as reductions in profit tax rates, reversal of out-of-payroll work reforms, refunds for value-added tax claims for tourists and a freeze. on alcohol fee rates.

Hunt said the total reversal of tax cuts amounted to £32 billion a year.

The only fiscal policies left for former Finance Minister Kwasi Kwarting are to cancel the planned increase in National Insurance, a general tax, to 1.25%. And reduce taxes paid on the purchase of real estate.

Markets welcomed this announcement, with Sterling pound Trading was up more than 1% against the dollar by 11:30 AM London time. UK government bond yields also fell sharply, with the 10-year bond yield dropping 35 basis points at 3.974%. Yields move inversely to prices.

Hunt also announced that the power pack is designed to support consumer And the Business The energy bills will only run until April and then be revised to “cost the taxpayer significantly lower than planned.”

Under the current plan, the government Dam The amount paid per kilowatt-hour for gas and electricity is below the market price amid high wholesale prices. The average family is now expected to pay £2,500 a year, which is still up from the average annual bill of £1,400 for 2021 but well below the average annual bill. £4,650 projected without intervention.

“The central responsibility of any government is to do what is necessary for economic stability,” Hunt said in a short statement Monday morning.

See also  Ukraine War: Chief Wagner demolishes Russian claims of Ukrainian loss of life

“No government can control markets, but every government can give certainty about the sustainability of public finances. This is one of the many factors that influence the behavior of markets. For this reason, although the Prime Minister and I are committed to reducing corporate tax, on Friday I listened to Concerns about the mini-budget.

Hunt said a full statement of questions would be presented to Parliament later on Monday, but since the details are market sensitive, he wanted to provide a brief summary in an effort to instill “confidence and stability.”

market chaos

The government had already been forced to change its plan both Abolition of the highest rate of income tax And the Eliminate the planned increase in corporate tax From 19% to 25%.

On Friday, Prime Minister Liz Truss opened fire Finance Minister Kwarteng Less than six weeks after the couple took office, they appeared to blame the chaos wrought by financial markets over the budget announced on September 23.

she includes Unfunded tax deductions The sum is expected to total 45 billion pounds ($50.78 billion), which Truss and Quarting described as a radical plan to bolster sluggish economic growth in the UK and was a key part of Truss’ leadership campaign.

However, markets were spooked by a combination of factors including the potential for government debt to rise significantly given imminent subsidies from consumer And the Business energy bills and Noticeable mismatch between the Bank of England The current monetary tightening To tame inflation and a government stimulus package. The lack of economic forecasts from the UK’s Office of Budget Responsibility also weighed on the markets.

The pound’s decline against the dollar accelerated throughout the year, and British government bonds, known as gilts, saw a surge dramatic sale. The Bank of England launched a Interim Bond Purchase Program To support the market that ended on Friday, in large part Liability-Driven Investment (LDI) Funds Protection – many of which are owned by retirement plans – from collapse.

Besides the potential effects of a weaker pound, the public has also been affected by market volatility Mortgage offers withdrawn Mortgage rates rose as lenders assessed expectations of new interest rate hikes.

John Geoff, the former deputy governor of the Bank of England, told the BBC Monday morning that leaks from the Treasury had shown the UK’s deficit close to £70 billion.

“Hunt realized that even if he squeezed public spending so hard, he wouldn’t be able to balance the books while doing it,” he told TODAY. “So he can’t afford that kind of tax cut, even the £25bn left on the table.”

Inflation ‘higher for longer’?

Paul Dills, the UK’s chief economist, said Hunt had eliminated a gearing/quarting package in an effort to reassure markets that the government had some fiscal discipline in place.

“It appears to be working with most of the rally in sterling continuing and the significant drop in gold yields earlier today,” he said in a note.

“But while the chancellor has reduced financial uncertainty, by ensuring that utility prices are only frozen until April 2023 instead of October 2024, it has introduced more economic uncertainty.”

That means inflation could rise for a longer period, Dills said, that real household incomes could fall more sharply and any recession could be deeper.

“There are a lot of moving parts, but our current expectations that interest rates will rise from 2.25% now to 5.00% and GDP will fall by 2% during the recession do not seem far from reality,” he added.

The latest UK inflation figures are due on Wednesday.

“Today was probably an admission that you can’t do things on hooves without thinking about the market reaction,” Tim Sarson, KPMG’s head of UK tax policy, told CNBC’s Squawk Box Europe.

Sarson said there is limited evidence that the shape of The economics of “going down” espoused by Trussfor which tax cuts are seen as a means to boost growth and increase general prosperity, have been effective, or that changing tax rates has been the most important factor in determining the success of the economy.

Even setting that aside, Truss’ approach was particularly misleading, he said.

“It was just the way it was done, the lack of clear determination of the cost, the fact that it was done at a time when government finances are being stretched by the need to subsidize energy consumers, and at a time when global interest rates and gilts are on the rise. And there could not be a worse time to start experimenting with this kind of aerodynamics,” added Sarson.

Uncertain gear position

The ruling Conservative Party hopes that the arrival of Hunt, who held previous positions as health and foreign minister but was a member of Parliament until Friday, will give the government a much-needed boost.

Political polls show the party is dropping to its lowest levels since the 1990s, and Britons are a Difficult winter for high prices.

Media reports emerged of dissatisfaction with Truss’ premiership from her deputies just 40 days after she took office. However, under current Conservative Party rules, a new leadership election cannot be held for 12 months.

Former Prime Minister Boris Johnson He announced that he would be stepping down On July 7, after a wave of resignations by senior ministers.