Crisis, What Crisis? Chancellor to deliver emergency statement on the Medium-Term Fiscal Plan

HUNT MOVES TO STEADY MARKET JITTERS

The Chancellor will make a statement at 11am, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability.

He will also make a statement in the House of Commons this afternoon.

This follows the Prime Minister’s statement on Friday, and further conversations between the Prime Minister and the Chancellor over the weekend, to ensure sustainable public finances underpin economic growth.  

The Chancellor will then deliver the full Medium-Term Fiscal Plan to be published alongside a forecast from the independent Office for Budget Responsibility on 31 October. 

The Chancellor met with the Governor of the Bank of England and the Head of the Debt Management Office last night to brief them on these plans. 

That racket you hear is those infamous Mini-Budget economic plans being put through the shredder – Ed. …

UPDATE: The Chancellor of The Exchequer Jeremy Hunt has today, Monday 17 October, brought forward a number of measures from 31 October’s Medium-Term Fiscal Plan:

• Changes designed to ensure the UK’s economic stability and provide confidence in the government’s commitment to fiscal discipline
• Basic rate of income tax to remain at 20% until economic conditions allow for it to be cut, IR35 and dividend tax rate reforms no longer going ahead
• Treasury-led review of energy support after April 2023 launched

Following conversations with the Prime Minister, the Chancellor has taken these decisions to ensure the UK’s economic stability and to provide confidence in the government’s commitment to fiscal discipline.

The Chancellor made clear in his statement that the UK’s public finances must be on a sustainable path into the medium term.

Today’s announcement represents another down payment following the reversal of the corporation tax cut announced on Friday 14 October by the Prime Minister. The Chancellor will publish the government’s fiscal rules alongside an OBR forecast, and further measures, on 31 October.

In his statement the Chancellor announced a reversal of almost all of the tax measures set out in the Growth Plan that have not been legislated for in parliament.

The following tax policies will no longer be taken forward:

• Cutting the basic rate of income tax to 19% from April 2023. While the government aims to proceed with the cut in due course, this will only take place when economic conditions allow for it and a change is affordable. The basic rate of income tax will therefore remain at 20% indefinitely. This is worth around £6 billion a year.
• Cutting dividends tax by 1.25 percentage points from April 2023. The 1.25 percentage points increase, which took effect in April 2022, will now remain in place. This is valued at around £1 billion a year.
• Repealing the 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) from April 2023. The reforms will now remain in place. This will cut the cost of the government’s Growth Plan by around £2 billion a year.
• Introducing a new VAT-free shopping scheme for non-UK visitors to Great Britain. Not proceeding with this scheme is worth around £2 billion a year.
• Freezing alcohol duty rates from 1 February 2023 for a year. Not proceeding with the freeze is worth approximately £600 million a year. The next steps of the Alcohol Duty Review announced in Growth Plan 2022 will continue as planned. The alcohol duty uprating decision and interactions with the wider reforms to alcohol duties under the Alcohol Duty Review will be considered in due course.

This follows on from the previously announced decisions not to proceed with the Growth Plan proposals to remove the additional rate of income tax and to cancel the planned increase in the corporation tax rate.

Taken together, these changes are estimated to be worth around £32 billion a year.

The government’s reversal of the National Insurance increase and the Health and Social Care Levy, and the cuts to Stamp Duty Land Tax, will remain benefitting millions of people and businesses. The £1 million Annual Investment Allowance, the Seed Enterprise Investment Scheme and the Company Share Options Plan will also continue to further support business investment.

Energy bills support review

The government has announced unprecedented support within its Growth Plan to protect households and businesses from high energy prices. The Energy Price Guarantee and the Energy Bill Relief Scheme are supporting millions of households and businesses with rising energy costs, and the Chancellor made clear they will continue to do so from now until April next year.

However, looking beyond April, the Prime Minister and the Chancellor have agreed that it would be irresponsible for the government to continue exposing the public finances to unlimited volatility in international gas prices.

A Treasury-led review will therefore be launched to consider how to support households and businesses with energy bills after April 2023. The objective of the review is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need. The Chancellor also said in his statement that any support for businesses will be targeted to those most affected, and that the new approach will better incentivise energy efficiency.

The government is prepared to act decisively and at scale to regain the country’s confidence and trust. The Chancellor stated in his speech that there will be more difficult decisions to take on both tax and spending. This means doing what is needed to lower debt in the medium term and to ensure that taxpayers’ money is well spent, putting public finances on a sustainable footing.

In light of this, government departments will be asked to find efficiencies within their budgets. The Chancellor is expected to announce further changes to fiscal policy on 31 October to put the public finances on a sustainable footing.

Further information

• Table of total benefit of tax policy reversals:

Policy (£bn)	2022-23	2023-24	2024-25	2025-26	2026-27
Re-instate plans to raise Corporation Tax to 25% from April 2023	+2.3	+12.4	+16.6	+17.6	+18.7
Suspend 1p reduction in the basic rate of income tax	0	+5.3	+5.9	+5.8	+5.9
Maintain additional rate of income tax	+2.4	-0.6	+0.8	+2.2	+2.1
Maintain 1.25 percentage point increase in dividends tax rates	0	+1.4	-1.0	+1.1	+0.9
Maintain 2017 and 2021 reforms to off-payroll working rules (also known as IR35)	0	+1.1	+1.4	+1.7	+2.0
Cancel VAT-free shopping scheme for non-UK visitors to Great Britain	0	0	+1.3	+2.0	+2.1
Cancel one year freeze to alcohol duty rates	+0.1	+0.5	+0.6	+0.6	+0.6
Total	+4.7	+20.1	+25.4	+30.9	+32.3

• Costings in the table are as set out in the Growth Plan 2022 – except for the 1p reduction in the basic rate of income tax, which is the costing from Spring Statement 2022 as adjusted in the Growth Plan 2022. Final costings will be set out as part of the Medium-Term Fiscal Plan on 31 October. Totals may not sum due to rounding.

THE CHANCELLOR’s STATEMENT:

A central responsibility for any Government is to do what is necessary for economic stability.

This is vital for businesses making long-term investment decisions and for families concerned about their jobs, their mortgages, and the cost of living.

No government can control markets, but every government can give certainty about the sustainability of public finances and that is one of the many factors influencing how markets behave.

And for that reason, although the Prime Minister and I are both committed to cutting corporation tax on Friday she listened to concerns about the mini budget and confirmed we will not proceed with the cut to Corporation Tax announced.

The government has today decided to make further changes to the mini budget.

And to reduce unhelpful speculation about what they are, we have decided to announce these ahead of the Medium-Term Fiscal Plan, which happens in two weeks.

I will give a detailed statement to Parliament and answer questions from Members of Parliament.

But because these decisions are market sensitive, I have agreed with the Speaker the need to give an early, brief summary of the changes which are all designed to provide confidence and stability.

Firstly, we will reverse almost all the tax measures announced in the Growth Plan three weeks ago that have not started Parliamentary legislation.

So whilst we will continue with the abolition of the Health and Social Care Levy and Stamp Duty changes we will no longer be proceeding with:

• The cut to dividend tax rates.
• The reversal of off-payroll working reforms introduced in 2017 and 2021.
• The new VAT-free shopping scheme for non-UK visitors.
• Or the freeze on alcohol duty rates.

Secondly, the government’s current plan is to cut the basic rate of income tax to 19% from April 2023.

But at a time when markets are rightly demanding commitment to sustainable public finances, it is not right to borrow to fund this tax cut. So I have decided that the basic rate of income tax will remain at 20% and it will do so indefinitely, until economic circumstances allow for it to be cut.

Taken together with the decision not to cut Corporation Tax, and restoring the top rate of income tax the measures I’ve announced today will raise, every year, around £32bn.

Finally, 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 am 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.

The most important objective for our country right now is stability.

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.

There will be more difficult decisions to take 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.

But growth requires confidence and stability, and the United Kingdom will always pay its way.

This Government will therefore make whatever tough decisions are necessary to do so.

REACTION:

Commenting on the Chancellor Jeremy Hunt’s fiscal statement today (Monday), TUC General Secretary Frances O’Grady said: “The Conservatives drove the UK economy over a cliff. Hunt slamming the gears into reverse now won’t help families and businesses already hit by soaring borrowing costs.

“People needed reassurances today. Instead, they got more uncertainty – about energy bills, about our public services, and about whether universal credit and benefits will rise with inflation.

“We are now on the brink of a deep and damaging recession that threatens millions of jobs. But the latest Conservative Chancellor still has the same basic approach that got us into this mess.

“The Chancellor should have announced a boost to universal credit and pensions, and a comprehensive plan to get wages rising faster for everyone. And he should have announced a much higher windfall tax on oil and gas giants.”

On the announcement of a review of support for families and businesses with energy costs beyond April 2023, she added: “Families and businesses now face months of worry. There is going to be less help with bills – but no-one knows who will lose out, by how much, or whether there will finally be a programme to fix Britain’s cold and draughty homes. This is not the reassurance working families need.”

Director of Policy & Communications at Independent Age, John Palmer, said: “Older people living on low and modest incomes were hoping to be reassured today, but frustratingly the Chancellor’s statement posed more questions than answers.  

“Instead of ensuring stability, today only provided uncertainty. The review of the Energy Price Guarantee is extremely concerning. It’s no longer clear who will receive support beyond April 2023. Now millions of older people are wondering if they will be abandoned by the government and left with unaffordable energy bills and freezing homes next year.  
 
“We know that many people in later life are already making dangerous cutbacks on heating and food. Our own polling revealed that 65% of older people plan to use less heating this winter.  
 
“The government must ensure that its new targeted approach from next year helps older people in financial hardship, including the 850,000 older people who are currently entitled to Pension Credit but do not receive it.  

 “A fundamental, non-negotiable way to help older people’s incomes keep up with the price of essentials is for the government to uprate benefits and the State Pension with inflation. Today was another missed opportunity to offer this reassurance. Instead, millions of people over 65 will continue to live in fear that they will be made even poorer, when their budgets have been broken by the cost-of-living crisis.”

Will Hodson, consumer champion and founder of How To Save It commented: ‘The Chancellor’s announcement that the Government will review the energy price cap in April is welcome. Supporting millionaires in paying their energy bills for two years was both morally and economically wrong.

“However, many households will be concerned about what this change means for them. The Government needs to make sure that their support is both good value to the taxpayer and provides sufficient, targeted support to those who really need it.’