Finance minister reverses Truss economic plan in dramatic U-turn

(File photo) UK newFinance Minister Jeremy Hunt

New Finance Minister Jeremy Hunt scrapped Prime Minister Liz Truss’s economic plan and scaled back her vast energy subsidy yesterday, launching one of the biggest fiscal policy U-turns in British history to stem a dramatic loss of investor confidence. Charged with halting a bond market rout triggered by the government’s announcement on September 23 of huge unfunded tax cuts, Hunt has now reversed all the policies that helped Truss become Conservative Party leader and premier less than six weeks ago. Her spokesman denied that Hunt was running the country after his new strategy of also cutting spending sent the pound soaring against the dollar and helped government bond prices start to recover from a three-week pounding. “A central responsibility for any government is to do what is necessary for economic stability,” Hunt said in a televised statement, adding that he would “reverse almost all the tax measures announced in the Growth Plan three weeks ago.” The former foreign and health minister was appointed on Friday after Truss sacked Kwasi Kwarteng, her close ally. Under the new policy, most of Truss’s £45bn of unfunded tax cuts will go and a two-year energy support scheme for households and businesses – expected to cost well over £100bn – will now be curtailed in April. A review after that will set out a targeted scheme that will “cost the taxpayer significantly less than planned”. Hunt said halting the planned tax cuts would raise £32bn ($36bn) every year. The pound soared by as much as 1.5% to $1.1338 at 2.33pm (1333GMT). Economists said the measures would not plug the gap in the public finances or undo the damage done by the government’s radical policy, but were a move in the right direction. “We have taken action to chart a new course for growth that supports and delivers for people across the United Kingdom,” Truss said on Twitter. Britain’s latest crisis started on September 23, when the newly-appointed Truss and her then-finance minister Kwarteng unveiled £45bn of unfunded tax cuts to snap the economy out of years of stagnation. They argued that a huge increase in spending during the Covid-19 pandemic had set Britain’s tax take on course to reach its highest level since the 1950s. But the response from bond investors who would fund the tax cuts was violently negative and borrowing costs surged. Lenders pulled mortgage offers and the Bank of England eventually had to step in to stop pension funds going under. After scrapping one of the tax cuts, Truss fired Kwarteng on Friday, saying she accepted her plans had gone “further and faster” than investors were expecting. Hunt then had the weekend to ditch the rest and start reviewing spending to appease the markets and prevent borrowing costs from rising further. Adding to the pressure, the BoE stuck to its plan to end emergency support on Friday. Gilts rallied yesterday but the damage endures, with the yield on the 10-year bond still some 46 basis points above its closing level on September 22. While yields for comparable German and US bonds have increased over the same period, the hit to British debt remains especially severe. The Resolution Foundation think tank said Britain was again embarked on a “tax raising economic agenda,” with typical households set to lose around £1,000 of income.