Jeremy Hunt, the new UK chancellor, on Monday scrapped the bulk of his predecessor Kwasi Kwarteng’s tax cuts in a desperate effort to calm markets, while slashing the government’s energy support package.
In an emergency move to rebuild the government’s fiscal credibility, Hunt rewrote the government’s tax and spending plans, putting a wrecking ball through the economic policy of prime minister Liz Truss.
Markets responded positively to signs that Hunt was finally getting a grip on Britain’s public finances, with gilts and sterling extending their rally after the chancellor gave a statement at 11.10am.
The closely watched 30-year yield traded 0.42 percentage points lower on the day at 4.36 per cent, reflecting large price gains. Sterling was 1.3 per cent higher against the dollar at $1.1316, also building on earlier gains.
Hunt needs to carry out a fiscal tightening of about £70bn, according to the latest interim forecasts from the Office for Budget Responsibility, with markets weighing his every word.
He said his priority was to restore “economic stability” and announced the scrapping of £32bn of unfunded tax cuts — roughly two-thirds of the £45bn promised by Kwarteng on September 23.
The U-turns include the £21bn of retreats already announced by Truss on corporation tax and scrapping the top rate of income tax, according to figures for the 2026 tax year released by the Treasury.
A £6bn cut in the basic income tax rate from 20 per cent to 19 per cent was shelved indefinitely, with the chancellor saying it was wrong for the government to pay for it through borrowing.
Meanwhile, Hunt reversed tax changes on dividend income, IR35 off-payroll rules, alcohol duty and a VAT-free shopping scheme, saving another £5bn. Only a £13bn national insurance cut and a £1.5bn stamp duty cut survive.
In another dramatic move, Hunt announced that an “energy price guarantee” to households and business would last only until April, and thereafter it would be more targeted.
The scheme, which will cost £60bn for the first six months, would be redrawn so that it would cost “significantly less”, while retaining help for those most in need. A Treasury review will be launched into the scheme.
Hunt said the ripping up of Truss’s core economic policies was essential. “The most important priority now is stability,” he added.
The chancellor, appointed to replace Kwarteng last Friday, added: “There will be more difficult decisions I’m afraid on tax and spending.” A new debt-cutting plan and OBR forecasts will be finalised on October 31.
“The UK will always pay its way,” said Hunt. The markets responded positively to the statement, but the prime minister’s position now hangs by a thread.
Truss is expected to be at Hunt’s side in the House of Commons at 3.30pm to hear him read the last rites over her dream of a “low-tax” economy.
Angela Richardson, Tory MP for Guildford, became the latest MP to say Truss’s position was no longer tenable. Tobias Ellwood, Commons defence committee chair, told Sky this was “the worst crisis since Suez”.
Truss and Hunt aimed to reassure government bond markets, reducing the costs of servicing government debt and minimising the amount of further spending cuts and tax increases needed for sustainable public finances.
As market interest rates at short and long maturities have climbed higher since Kwarteng’s “mini” Budget last month, the hole in the public finances has risen close to £70bn.
The Treasury was having to manage an even larger loss of trust in the UK government than assumed by the Institute for Fiscal Studies when it estimated a £60bn shortfall in 2026-27.
The Bank of England confirmed on Monday it was ending bond-buying operations and replacing it with a lending facility, noting the central bank was not there “to provide a permanent backstop” to the pensions industry, which has been hit by the volatility in gilts.
In a statement it said its emergency actions had “enabled a significant increase in the resilience of the sector”.
The full hole in the public finances would not be filled on Monday, however, partly because the Treasury is hoping to lower interest rates in the markets and thereby reduce the gap still to be bridged.
It expects the OBR to change the time period over which it assesses market interest rates, as it did this March, if ministers can demonstrate the UK state is more creditworthy.
Hunt agreed to the emergency statement with Truss on Sunday after concluding that her government could not afford another battering by the markets this week.
The government had planned to announce the moves as part of a medium-term debt-cutting plan on October 31. The date had already been moved forward from November 23.
Cuts and “efficiency savings” will be discussed by cabinet ministers at a Downing Street reception on Monday evening and again at a formal cabinet meeting on Tuesday.
Hunt met Andrew Bailey, governor of the BoE, and the Debt Management Office on Sunday to discuss the plans.