Last week, new Chancellor of the Exchequer, Jeremy Hunt, walked back most of an economic package announced by the government mere weeks ago, which included a planned cut to income tax.
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The new chancellor is set to debut a medium-term fiscal plan shortly, but the move came in response to the volatility in the market that was sparked by previous announcements that attempted to revive the economy. Hunt said that nearly all of the tax cuts announced las month would be scrapped and that public spending cuts will be happening soon. The previous energy price cap designed to help households pay their bills and stay warm this winter was also scaled back and will be reviewed next April as opposed to going on for two years.
This announcement comes after the government had already scrapped parts of its tax-cutting plan, but it seemed those didn’t do much to assuage fears. The Chancellor stated that these amendments were made because tax cuts were not justified at this time since markets are ‘demanding commitments to sustainable public finances.’ Hunt replaces Kwasi Kwarteng, who, along with Prime Minister Liz Truss, jointly presented £45 billion worth of unfunded tax cuts which in turn spooked financial markets, sending the pound to record lows and caused the Bank of England (BoE) to take emergency action.
The new Chancellor’s agenda seems to be restoring the government’s credibility for sound fiscal policy after Truss and Kwarteng’s rushed tax cut plans that failed to provide details for how exactly those cuts would be funded. Investors surmised that without funding, these cuts would contribute to unsustainable borrowing. Of course, with that, comes the knock-on effect on mortgage costs and the value of the pound — which plummeted to an all time low against the dollar, forcing the BoE to step in and protect pension funds that were impacted by the bond market.
The initial response to the news has been positive, but analysts warn it could be temporary, especially because of the ever-changing leadership of the country. Stay connected for more financial updates and be sure to make contact with your financial adviser to discuss how these changes will affect you.