Financial markets have reacted positively to the new chancellor’s cull of more costly measures in his predecessor’s disastrous mini-budget.
Jeremy Hunt revealed in a televised statement that he would no longer be proceeding with almost all the controversial package, including the reduction in the basic rate of income tax from 20% to 19% from next April.
The energy price guarantee, which was to be in place for two years, will now continue only until April with its future make-up to become the subject of a Treasury-led review and more targeted towards the worse off.
The moves were welcomed by investors as the pound gained further lost ground against the dollar – to stand above $1.13 – up by almost a cent and a half on the day at one stage.
UK government borrowing costs also eased further with yields on 20 and 30-year bonds down by more than 40 basis points.
Sterling had fallen to a record low against the dollar at the end of September, after the short-lived then chancellor Kwasi Kwarteng unveiled the biggest programme of tax cuts for 50 years.
Mr Kwarteng, who was sacked on Friday after just 38 days in the job, paid the price for a tax and spending package that called into question the government’s economic credibility on financial markets.
Chancellor reverses ‘almost all’ tax cuts in mini-budget and says energy bills support scheme to be scaled back
Chancellor to reveal parts of his medium-term fiscal plan today, Treasury says
Pound rebounds and government borrowing costs fall as Jeremy Hunt’s fiscal statement looms
The mini-budget led not just to a collapse in the value of the pound, but also prompted a surge in borrowing costs – forcing an unprecedented intervention by the Bank of England (BoE).
Both moved in the right direction after the prime minister’s announcement on Friday that Mr Kwarteng was going and that corporation tax would rise to 25% from April next year instead of being kept at 19%.
Mr Hunt, a former foreign and health secretary, promised to win back the confidence of the financial markets by fully accounting for the government’s tax and spending plans.
His statement on Monday was aimed at supporting “fiscal sustainability”.
Mr Hunt met the BoE governor Andrew Bailey and the head of the Debt Management Office on Sunday night to brief them on his plans.
A full medium-term fiscal plan, containing analysis from the Office for Budget Responsibility, is still due to be revealed on 31 October.
‘Unruly pupils are still scheming to oust the beleaguered head’
There remained an elephant in the room as far as financial analysts were concerned – the fate of the architect of the government’s initial economic strategy, Liz Truss.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ”This is all part of his (Mr Hunt’s) charm offensive to instil confidence in the government’s ability to be fiscally responsible, but behind him unruly pupils are still scheming to oust the beleaguered head,” she wrote.
Joshua Raymond, director at online investment platform XTB.com, said of the chancellor’s update: “It’s a complete reversal on every single major political pledge she has made to date and as a result, her political authority is most likely at an end.
“In a matter of days, I expect the market focus to shift more towards who replaces Liz Truss as prime minister of the UK.
“Liz Truss today became prime minister in name only.”
Can Truss remain as PM?
A Tory MP told Sky News: “The idea that the prime minister can just scapegoat her chancellor and move on is deluded.
“This is her vision. She signed off on every detail and she defended it.”
The Conservative Party is now on its fifth chancellor in the past three years – Mr Hunt, Mr Kwarteng, Nadhim Zahawi, Rishi Sunak and Sajid Javid.
