The British government on Monday axed almost all of its debt-fuelled tax cuts unveiled last month to avert fresh markets chaos, in a humiliating climbdown for embattled Prime Minister Liz Truss.
The shock move by new finance chief Jeremy Hunt, parachuted into the job on Friday to replace sacked Kwasi Kwarteng, leaves Truss’ position in a precarious state after a series of embarrassing U-turns.
Hunt estimated the tax changes would raise about £32 billion ($36 billion) per year, after economists estimated the government faced a £60-billion black hole. He also warned of tough spending cuts.
The chancellor of the exchequer said no government could control markets — but stressed his action would give certainty over public finances and help secure growth.
“We will reverse almost all the tax measures announced… three weeks ago,” Hunt said in a televised statement, conceding last month’s budget from his predecessor had harmed the public purse.
“The most important objective for our country right now is stability,” he added in a contrite statement, ahead of setting out further details in parliament later Monday.
Hunt scrapped plans to axe the lowest rate of income tax, and curbed the government’s flagship energy price freeze — pulling the plug in April instead of late 2024.
After April, his department will “review” its energy support package, he said.
A proposed reduction in shareholder dividend tax was also binned, along with planned tax-free shopping for tourists and a freeze on alcohol duty.
The announcement comes as Truss’ governing Conservative Party tanks in the opinion polls amid the reversals and Britain’s worsening cost-of-living crisis.
Labour led the UK’s ruling Conservatives by 36 points in a poll published on Monday, the latest blow for Truss.
The margin is the biggest enjoyed by any UK party in a quarter of a century, polling company Redfield and Wilton Strategies said in a statement. It put Labour on 56% and the Tories on 20%.
Truss fired her close friend Kwarteng on Friday after their recent tax-slashing budget sparked markets chaos – fuelling intense speculation over her political future one month after taking office.
Last month’s notorious budget had sent bond yields spiking and the pound collapsing to a record dollar-low on fears of rocketing UK debt.
Tax reductions were the centrepiece of the ill-fated budget, but they were financed via huge borrowing.
Truss had already staged two embarrassing budget U-turns, scrapping tax cuts for the richest earners and on company profits.
Hunt’s announcement also came as a report in the Daily Mail claimed British lawmakers will try to oust Truss this week despite Downing Street’s warning that it could trigger a general election.
More than 100 members of parliament (MPs) belonging to the governing Conservative Party are ready to submit letters of no confidence in Truss to Graham Brady, the head of the Conservative Party’s committee which organises the leadership contest, the tabloid reported, quoting unnamed sources.
Britain, engulfed in a political crisis, has lost three prime ministers since it voted to leave the European Union in 2016.
The MPs will urge Brady to tell Truss that “her time is up” or to change the political party rules to allow an immediate vote of confidence in her leadership, the report said. Brady is said to be resisting the move, arguing that the Truss, along with Hunt, deserve a chance to set out economic strategy in a budget on October 31, the report added.
Separately, The Times reported that some lawmakers have held secret discussions on replacing Truss with a new leader.