Hunt shunts ‘mini-budget’ leaving PM with growing (plan) pains

In a statement to the House of Commons on Monday 17 October, Hunt also made clear there will be cuts to come in public spending – something Prime Minister Liz Truss had said the previous week that she was ‘absolutely’ not planning. Hunt accepted that ‘we have had short-term difficulties, caused by the lack of a forecast from the Office for Budget Responsibility (OBR) alongside the mini-Budget’. He responded to questions from MPs after his statement.

In his statement Hunt reversed of almost all the tax measures set out in Growth Plan that have not been legislated for. The following tax policies will no longer be taken forward:

• Cutting the basic rate of income tax to 19 per cent 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, he says. The basic rate of income tax will therefore remain at 20 per cent 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, it is claimed.
  
  This is after 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. The £1 million Annual Investment Allowance, the changes to the Seed Enterprise Investment Scheme and the Company Share Options Plan will also continue.
  
  Away from tax, Hunt said the planned cap on the annual cost of energy at £2,500 for a typical household for two years will be scaled back. That promise will now only last until April, after which a new approach will be found that will cost the taxpayer significantly less than planned, he said.
  
  The Chancellor told MPs: “There remain, I am afraid, many difficult decisions to be announced in the medium-term fiscal plan on 31 October when, I confirm, we will publish a credible, transparent and fully costed plan to get debt falling as a share of the economy over the medium term based on the judgment and economic forecasts of the independent OBR.” He went on to say: “We remain completely committed to our mission to go for growth, but growth requires confidence and stability, which is why we are taking many difficult decisions—starting today.”
  
  Trying to defend the economic crisis in the UK that has occurred after the mini-budget panicked the markets, Hunt said the UK’s unemployment rate is the lowest since 1974 and since 2010 our growth rate has been the third highest in the G7, we have the largest technology sector in Europe and more foreign direct investment than anywhere in Europe bar one country.
  
  Reaction – Labour MPs
  
  Shadow Chancellor Rachel Reeves said that all that is left, after these ‘humiliating’ U-turns, are higher mortgages for working people and higher bonuses for bankers. The Government’s climbdown on energy support begs the question yet again why they will not extend the windfall tax on energy producers to help to foot the bill, said Reeves. The MP highlights that Hunt in his Conservative leadership bid wanted corporation tax to fall to 15 per cent ‘with not a single explanation of how it was to be paid for’. Businesses are now saying that things are so unstable they are pausing investment here in Britain, she claims. Reeves is concerned that MPs are receiving another massive fiscal statement with no OBR forecast. She suggested the Government abolish the non-dom tax status to raise £3 billion a year.
  
  Dame Margaret Hodge claims there is ‘great evidence’ since former PM Margaret Thatcher’s day that investment zones are incredibly expensive, we lose income from them, they only lead to the transfer of jobs from one poor area to another, and they are a massive opportunity for every kleptocrat, oligarch and criminal to launder money into the UK. Hunt responded that the new investment zones will ‘learn the lessons when similar models have been tried in the past’.
  
  Steve McCabe is calling for an extension to raising the minimum income component of pension credit, or else the poorest pensioners in the land will be sacrificed on the altar of ‘Trussonomics’.
  
  Jess Phillips wonders why Hunt is spending £2 billion a year on unfunded stamp duty cuts when he said in his statement that he could not announce unfunded tax cuts.
  
  Chris Bryant said because of 12 years of ‘Tory economics’, we will have the highest tax take in our history and still the highest borrowing in our history and probably the largest tax cuts in our history. Why is this the only major economy in the world that has not yet grown to the level that it occupied before the pandemic?
  
  Hunt told Labour’s sceptical Toby Perkins that ‘when it comes to corporation tax, I would love to reduce it. In the long run, I think we do get more money. We do get more money back, but that has to be on money that we actually have—it cannot be on borrowed money, which is why we have changed direction.”
  
  Work and Pensions Committee Chair Stephen Timms said it was a very heavy blow to the lowest-income households in the country in April when social security benefits were uprated by 3.1 per cent and inflation was nearly 10 per cent. It was justified at the time on the basis that that was what the regular uprating formula had delivered, and that the same formula would be used next April. Timms said this is a matter of fairness, but Hunt was noncommittal.
  
  Beth Winter is calling on the Chancellor to listen to the Wealth Tax Commission and others who urge the Government to raise tax on wealth and non-earnings income, rather than decimate public services on which our constituents rely. But in Hunt’s view the kind of taxes that Winter is advocating would destroy the wealth of the overall economy, so we would have less money for the NHS and the people who need it most.
  
  Richard Burgon says it is fair to impose a wealth tax on the very richest in our society because the very richest have seen their wealth soar threefold over the past decade. Hunt’s view is that the trouble with those kinds of taxes is that they end up inhibiting the wealth-creating capacity of the economy to fund public services. “I support wealthier people paying more tax, but only when it creates more resources to put into the public services that we all need”, claims Hunt.
  
  Zarah Sultana said instead of cutting funding for public services, the Government could ‘raise taxes on the super-rich’.
  
  Reaction – Conservative MPs
  
  Treasury Committee Chair Mel Stride praised the Chancellor for bringing forward a proposal for an Economic Advisory Council and Hunt’s assurance this council will not conflict with financial institutions such as Bank of England, OBR, FCA or PCA.
  
  Hunt guaranteed to Matt Hancock, that the OBR forecast will show debt falling as a proportion of our income and ‘that once we have the finances fully under control we will not be borrowing for day-to-day spending’.
  
  Sir Edward Leigh said: “By the time of the next election, can we as a Conservative party promise to get taxation back to at least its level at the start of the current Parliament, and get corporation tax back to being one of the most competitive in Europe? Otherwise, what is the point of a Conservative party?” Hunt was noncommittal on that but insisted he has a ‘a vision for economic growth’.
  
  Robert Halfon called for George Osborne-like ‘compassionate conservatism’. When that chancellor had ‘rightly’ to cut the deficit and cut debt, they also helped the neediest with the cost of living, introducing the living wage and cutting taxes for lower earners, introducing a fuel duty freeze, and investing in skills and apprenticeships, he said. Hunt said we will not solve the growth paradox of this country, raising our long-term rate of economic growth to 2.5 per cent from under one per cent, unless we tackle the skills issue.
  
  Mike Wood said the planned increases in alcohol duties will have a devastating impact on many small pubs, small brewers and hospitality businesses, and wants a reluctant Chancellor to bring forward the implementation of draught beer duty.
  
  Hunt said he fully understands Laura Farris’ enthusiasm for seed enterprise investment schemes focused on science and technology.
  
  Reaction – other MPs
  
  Alison Thewliss, the SNP’s Shadow Chancellor, is concerned about Hunt’s need for ‘efficiency savings’ in the public sector, saying the Institute for Government and the Chartered Institute of Public Finance and Accountancy have been clear that there is no fat left to cut after a lost decade for public services under the Conservatives. Hunt did not reply in any specific way to Thewliss' questions as to whether he will invest in renewables, carbon capture and storage, what will happen when the energy price cap will end, if he has a comprehensive energy-efficiency and insulation package, plan cancel the benefit cap and scrap the two-child limit or commit to uprating benefits with the rate of inflation.
  
  Dave Doogan (SNP) said Hunt should invite the Finance Ministers from the devolved nations to form part of his economic advisory board, although Hunt’s opinion is that the instability in the markets is mainly London-based.
  
  Lib Dem Leader Ed Davey said hundreds of pounds have now been added to mortgage bills, pushing millions of families to the brink, on top of higher food prices, higher fuel costs and higher energy bills. Despite that, the Chancellor refuses to undo one of the Government’s biggest injustices: their failure to impose a proper windfall tax on the record profits of the oil and gas companies, earned only because Putin is killing innocent Ukrainians. Hunt’s view is that ‘nothing is off the table’ but the energy industry is very cyclical and there are businesses that have periods of ‘feast and famine’. We must be very careful that we do not tax companies in a way that drives away investment, said the Chancellor.
  
  Tim Farron (Lib Dem) said the cut in stamp duty will help nearly nobody who can currently not afford a home in Cumbria and other rural communities to be able to afford one. What it will do is add fuel to the fire of a second home ownership and Airbnb disaster in areas such as the lakes and the dales. But Hunt claims it is wrong to be ‘dismissive’ of the concerns of young people desperately trying to get onto the housing ladder, and the help that we are giving them with the stamp duty reforms will make a significant difference.
  
  Christine Jardine (Lib Dem) said the Scotch whisky industry, and the spirits industry generally, is now facing uncertainty because of his U-turn on freezing the duty, and it has no certainty about whether or when the duty will go up, or when it will even know.
  
  On business rates, Hunt tells Daisy Cooper (Lib Dem): “Another of the promises I now vainly wish I had not made in the summer as to policies we should do is a fundamental review of business rates. I do not want to promise we are going to make any progress in the next two weeks because there are so many other things we have to consider.”
  
  Hunt told Sammy Wilson, Shadow DUP Spokesperson (Treasury) and Labour’s Dame Angela Eagle the cancellation of planned tax cuts in his statement is not the end of ‘difficult decisions ahead’ both on tax and spending.
  
  Green Caroline Lucas is disappointed that the investment zones policy was not ‘incinerated’ claiming they are designed to undermine environmental regulation, to avoid fair taxation and to bypass local democracy.
  
  The full session is here.
  
  By Hamant Verma, CIOT Senior External Relations Officer