PM's new chancellor scales back energy bill support and reverses tax cuts

Prime minister Liz Truss asked Hunt to step in as chancellor after Kwasi Kwarteng was sacked on Friday, following the financial turmoil brought about by the tax cuts in the mini-budget.

Almost all of the measures left in the Government's mini-budget have now been scrapped.

In an emergency statement this morning Hunt said that the basic rate of income tax, which had been due to be cut from 20p to 19p in April, will now not happen ‘indefinitely’, because he said it was ‘not right to borrow to fund this tax cut’.

He also said that the energy price guarantee – a major policy announced by Truss in her first few days in office – would be scaled back from two years to six months, and that instead there would be a Treasury-led review to look at how to support people with energy bills after April.

Hunt said, ‘The biggest single expense in the growth plan was the energy price guarantee.

‘This is a landmark policy supporting millions of people through a difficult winter and today I want to confirm that the support we are providing between now and April next year will not change.

‘But beyond that, the prime minister and I have agreed it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices.

‘So I’m announcing today a Treasury-led review into how we support energy bills beyond April next year. The objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.

‘Any support for businesses will be targeted to those most affected and the new approach will better incentivise energy efficiency.’

Hunt said that the measures announced would raise about £32bn every year.

He also said that all government departments would ‘need to redouble their efforts to find savings’ and spending would be cut in some areas.

Hunt said, ‘There will be more difficult decisions, I’m afraid, on both tax and spending as we deliver our commitment to get debt falling as a share of the economy over the medium term.

‘All departments will need to redouble their efforts to find savings and some areas of spending will need to be cut.

‘But as I promised at the weekend, our priority in making the difficult decisions that lie ahead will always be the most vulnerable and I remain extremely confident about the UK’s long-term economic prospects as we deliver our mission to go for growth.’

The chancellor will be making a statement to MPs in the House of Commons this afternoon, but in a sign of the urgency needed to calm the markets he had received special dispensation from the speaker to make an emergency statement about the changes shortly after 11am, which was ‘designed to give confidence and stability.’

Hunt said that the changes to the mini-budget were being announced ahead of the medium-term fiscal plan that will take place in two weeks (31 October).

'The most important objective for our country right now is stability,' he said. 'Governments cannot eliminate volatility in markets but they can play their part and we will do so, because instability affects the prices of things in shops, the cost of mortgages and the value of pensions.'

On Twitter, shadow chancellor Rachel Reeves said, ‘All the chancellor's statement underlines is that the damage has been done. This is a Tory crisis made in Downing Street, paid by working people with higher mortgage and higher borrowing costs. They’ve lost all credibility.

‘The chancellor said growth requires “confidence and stability”. It is clear the Tories can’t provide this. There will continue to be a huge cost to families because of them. We're still flying blind with no OBR [Office for Budget Responsibility] forecasts and no clarity on the impact of their mistakes.

‘The change on their energy plan begs the question yet again – why won’t they bring in a windfall tax on energy producers to help foot the bill? Only Labour offers the leadership and ideas Britain needs to fix the economy and get out of this mess.’

Teaching unions and early years organisations urged clarity on what the changes regarding energy bills and cost savings would mean.

Purnima Tanuku, chief executive of the National Day Nurseries Association (NDNA), said, ‘NDNA has been calling on the Government to make sure that nursery businesses are classed as vulnerable businesses. This is because they are very susceptible to high rises in energy, food and other resources. The Government already underpays for nurseries and other childcare providers to deliver childcare places on their behalf. These funding rates have not been changed since April this year despite all costs soaring rapidly.’

Tanuku said that their members were reporting ‘unmanageable’ energy bill rises of between 300 and 600 per cent.

‘Childcare businesses cannot just put up their fees to parents because they are also struggling with their bills. If nurseries face a cliff edge from next April onwards, many more may be forced to close.’

Paul Whiteman general secretary of school leaders' union NAHT, said, ‘We all now wait to see whether or not the financial statement made this morning brings some certainty and calm to the markets. However, one thing is clear: there was no good news for schools or other public services.

‘School leaders will rightly fear the chancellor’s suggestion that further savings will need to be found. We need to be very clear that school budgets are already at – and indeed beyond – breaking point. It would be a disaster if any of the mooted efficiency savings have an impact on school budgets.

‘School leaders will also be worried about what any changes to the scheme supporting energy costs could mean for them. We need urgent clarification that the government will continue to support schools beyond the initial six-month period previously announced.’

National Chair of the Federation of Small Businesses (FSB), Martin McTague, said, ‘The chancellor is right to highlight the need for stability, following all of the political turmoil and chopping and changing which has made it virtually impossible for businesses to plan and make investment decisions.’

He added, ‘The review to come on business and consumer energy support after six months must avoid a cliff-edge for small firms that remain impacted and vulnerable.’

Charities also warned that more families would fall into poverty without urgent support.

Child Poverty Action Group (CPAG) chief executive Alison Garnham said, ‘Families up and down the country are now terrified about how they will get through the tough times ahead. It’s frankly unthinkable that the poorest kids and families in our society will be forced to pay for the economic mistakes of this government – but today the Chancellor has given families no reassurance about how he will support them.

'As a bare minimum, the chancellor must confirm urgently that all benefits will rise in line with inflation.’

Mark Russell, Chief Executive at the Children’s Society, said, 'Today’s announcement to restore confidence and stability in the country’s economy still fails to provide any lasting reassurance to families worrying about how they are going to make ends meet over the coming months.   

'There has been a complete lack of targeted support for children hardest hit by the cost of living crisis. We know families are already facing unaffordable prices and unless something changes between now and the end of the Energy Price Guarantee in April the result will be disastrous. 

'We need urgent action now to stop thousands more children being pushed into poverty. We need to protect every childhood and making sure that benefits keep pace with inflation is the minimum the Government can do to protect families and the most vulnerable.'