New Chancellor makes statement on medium-term fiscal plan

Following his appointment on Friday 14th October, new Chancellor of the Exchequer Jeremy Hunt has made an emergency statement on the medium-term fiscal plan.

Kwasi Kwarteng was sacked as Chancellor after just 38 days in the job after markets and Conservative backbenchers reacted poorly his mini-budget. Jeremy Hunt’s statement includes a number of reversals of his predecessor’s policies as well as additional measures to close a near £70 billion fiscal gap in the Treasury.

In a video statement, Jeremy Hunt confirmed the reversal of the majority of tax cuts announced in the Growth Plan, detailed below:

• 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.

Previously announced decisions not to proceed with proposals to remove the additional 45% rate of income tax, and to cancel the planned increase in the corporation tax rate, were also confirmed, while cuts to Stamp Duty will still go ahead. Announcements by Rishi Sunak earlier this year to raise National Insurance and raise the threshold at which payments are first made will also remain.

Jeremy Hunt also announced plans to review the government’s support for domestic energy bills in light of recent falls in wholesale gas prices. Support will remain in place until at least April 2023, but will be reviewed to protect government coffers from ongoing market volatility, and allow for the design of a new scheme that offers more targeted support. Protection of domestic energy bills at the equivalent of £2,500 per year for the average household had been due to remain in place for two years.