Liz Truss appoints Jeremy Hunt as UK chancellor and scraps corporation tax cut

[dutchman]

The chancellor will need to make "big and painful" spending cuts to put the country's finances on a sustainable path, the Institute for Fiscal Studies think tank has warned



With a weaker economy and promised tax cuts, there will be a large shortfall in revenue, the IFS predicts.

It calculates the government would have to spend £60bn a year less by 2026-27.

However, the Treasury said its tax cuts and reforms would deliver "sustainable funding for public services".

In a new report, the IFS outlines the scale of the cuts necessary to make the sums add up over the next five years, using an illustrative example.

It suggests Chancellor Kwasi Kwarteng could:

• increase working-age benefits in line with average earnings rather than inflation for two years to save £13bn
  
• limit public investment to 2% of national income, to save £14bn
  
• cut the budgets of every government department except health and defence by 15%, to save around £35bn

Mr Kwarteng and Prime Minister Liz Truss have argued focusing on measures to promote growth will help plug the shortfall between income and outgoings.

The chancellor has promised to set out further details of his economic strategy on 31 October, three weeks earlier than originally planned, alongside a full forecast from the official Office for Budget Responsibility (OBR).

That change of timetable came after the markets baulked at the strategy announced in last month's mini-budget.

It outlined large tax cuts and a huge package of support with energy costs without details of how they would be paid for, and without the usual assessment of their impact from the OBR.

The IFS, a politically independent economics-focused think tank, has published its own assessment of the chancellor's strategy, in what it names a Green Budget, after the consultation green papers issued in Parliament.

It calculates the chancellor would have to cut spending on benefits, public services, and investment sharply if he wants to stick to his commitment to balance the budget in the medium term, rather than see debt continuing to rise.

IFS director Paul Johnson said: "The chancellor says he wants to get the public finances on a sustainable basis. It looks to us like that's going to mean tens of billions of pounds of spending cuts in order to achieve that.

"It's hard to see what other way out the chancellor has."

Mr Johnson said the country was not going into a period "with much fat to trim".

"One of the problems the government faces is we have had a decade and more of really tight spending settlements, we're still spending less on a lot of public services than we were just over a decade ago," he told BBC News.

Cutting public sector pay, benefits, education, justice and prisons would all be very difficult against that backdrop, he said.

[dutchman]

Prime minister sacks Kwarteng and performs U-turn on mini-Budget



Liz Truss, UK prime minister, has appointed Jeremy Hunt to replace Kwasi Kwarteng as chancellor and scrapped corporation tax cuts set out in the government’s “mini” Budget less than a month ago.

The government announced the appointment of Hunt, the former health and foreign secretary, who is from the left of the Conservative party, ahead of a press conference at which Truss abandoned Kwarteng’s plan to cut corporation tax.

“We need to act now to reassure the markets of our fiscal discipline,” Truss said. “It is clear that parts of our “mini” Budget went further and faster than the markets were expecting. So the way we are delivering our mission right now has to change.”

Kwarteng had planned to cancel a proposed increase in corporation tax next April from 19 per cent to 25 per cent. But at the press conference on Friday the government reversed the £18bn corporation tax cut.

The former chancellor arrived back in London from IMF talks in Washington on Friday morning and headed straight to Downing Street. Truss continued her clearout of Treasury ministers by moving Chris Philp, the chief secretary, to become paymaster general.

Philp had been blamed by anonymous government sources for originally mooting the idea of cutting the 45p top rate of tax, a plan that has now been abandoned. Philp was furious that he had been held responsible for the policy.

But while the “mini” Budget quickly turned into an economic and political disaster, the tax cuts were very much Truss’s policies and featured prominently in her Tory leadership campaign.

Kwarteng’s resignation letter emphasised that the government’s policies were driven by Number 10, even as he noted that “the economic environment has changed rapidly” since his fiscal statement last month.

“You have asked me to stand aside as your chancellor. I have accepted,” Kwarteng wrote. “It is important now as we move forward to emphasise your government’s commitment to fiscal discipline.”

Government bonds — at the centre of the turbulence that followed — have already staged a recovery from the lows of the week as markets increasingly anticipate a U-turn on the tax cuts.

Gilts extended a rally from Thursday into Friday afternoon, with the yield on the 30-year bond down 0.07 percentage points to 4.47 per cent as its price rose sharply. The pound slipped 0.4 per cent to $1.1283 against the dollar.

However, a Bank of England emergency bond-buying programme to shore up gilt-exposed pension funds expires on Friday, with investors concerned that if the government does not roll back its tax proposals, more turbulence could follow.

[rebbonk]

Who does she think she's kidding? She's toast and we all know it.

Unless I've missed it, the cap on bankers' bonuses is still to be removed? Remember that these were the unscrupulous, greed-driven, b*st*rds, that largely brought us to where we are today. And plenty of them benefitted from Kwarseng's disastrous budget when he caused the pound to plunge!

The best thing Truss could do would be to resign over the weekend and bring about a General Election. If she doesn't, the Tories will remove her at a time that suits them.

[dutchman]

UK business leaders hit out at corporation tax U-turn

Business leaders have demanded that prime minister Liz Truss find ways to offset the rise in corporation tax or else risk damaging investment in the UK.

The decision to reverse the planned freeze in corporation tax by Truss’s government in September had meant that alternative plans around investment incentives were ditched, and a bank surcharge of profits kept at a higher rate.

This has left businesses potentially worse off, according to company bosses, with banks facing a combined tax rate of 33 per cent of their profits.

CBI boss Tony Danker said on Friday that “raising corporation tax in 2023 may help on the fiscal credibility front but if this move is made in isolation it could backfire”.

“We have tax incentives for investment which are working but due to expire. So the government should balance any rise in corporation tax with investment allowances. That way you help achieve both stability and investment,” he added,

Banks have also raised concerns about what the decision will mean for taxes in the sector.

Given the planned freeze in corporation tax, the former chancellor said in September that he would keep the bank surcharge on profits at 8 percentage points, rather than falling to 3 as had been proposed.

[rebbonk]

Apparently, the £ slid after her brief press conference.

Odds on her going before the year is out are currently 8/13 (Source: https://www.oddschecker.com/politics/british-politics/liz-truss-exit-date)

[dutchman]

Two thirds of tax cuts from mini-budget reversed

The government will reverse "almost all" of the tax cuts announced in last month's mini-budget in an emergency move aimed at calming investors.

New chancellor Jeremy Hunt said the strategy, which includes keeping income tax at current levels, would bring in £32bn.

The move comes after economists warned the original plans would leave a £60bn black hole in the public finances.

Mr Hunt said his priority was to restore "economic stability".

Last month Mr Hunt's predecessor, Kwasi Kwarteng announced huge subsidies to energy prices and sweeping unfunded tax cuts, prompting turmoil in the financial markets. Investors were alarmed that there was no independent assessment of the impact on the economy and no explanation of how the package would be paid for.

Mr Hunt said he would be shelving almost all of Mr Kwarteng's tax changes and would look again at the way energy bills were being subsidised across the board.

"At a time when markets are rightly demanding commitments to sustainable public finances, it is not right to borrow to fund this tax cut," added Mr Hunt, referring to Mrs Kwarteng's plan to bring down the basic rate of income tax by 1p.

The pound rose and government borrowing costs fell after Mr Hunt's announcement.

[rebbonk]

The damage is done. The woman cannot carry on. Dodging Stammer's [sic] urgent question today, showed just where she really is. Mourdant did a very good job as stand-in, but you could tell that she knew that it was all over.

Truss either goes of her own accord, on her own terms, or the Tories will dispose of her at a time of their choice. But, the longer things are left to slide, the greater damage that will be done to the already divided Tory party.

Current odds on her seeing the year out 1/3. https://www.oddschecker.com/politics/british-politics/liz-truss-exit-date I personally wouldn't give odds on her seeing the week out.

[dutchman]

I'll lead Tories into next election, says embattled Liz Truss



Liz Truss has insisted she will lead the Tories into the next general election, despite U-turns leaving her battling to salvage her authority.

The PM apologised for making mistakes, after the new chancellor Jeremy Hunt junked almost all of her tax-cutting plans to stabilise market turmoil.

She added her month-old premiership "hasn't been perfect," but she had "fixed" mistakes.

And she said it would have been "irresponsible" not to change course.

In an interview with the BBC, she said she was still committed to boosting UK economic growth, but acknowledged it would now take longer to achieve.

"I remain committed to the vision, but we will have to deliver that in a different way," she said.

In her interview, Ms Truss said she accepted responsibility for going "too far, too fast" - and she wanted to "say sorry for the mistakes that have been made".

She added she remained committed to a "low tax, high growth economy" - but preserving economic stability was now the "priority".

"I do think it is the mark of an honest politician who does say 'yes, I've made a mistake. I've addressed that mistake. And now we need to deliver for people'.

"It would have been completely irresponsible for me not to act in the national interest in the way I have."

Shadow Treasury minister James Murray said the PM's apology "after weeks of blaming everyone else" would not "undo the damage" caused by her mini-budget.

"No sorry can change the fact that this crisis was made in Downing Street but is being paid for by working people," he added.

[rebbonk]

I caught that interview. Her eyes gave the game away, her rapid blinking betrayed her underlying stress. She knows her time is up.

[dutchman]