Newly appointed British Chancellor of the Exchequer Jeremy Hunt will release details of the Truss government’s tax plans on Monday, seen as a move to calm markets still jittery about their impact on the economy.
The finance minister is speeding up the announcement of some tax measures by two weeks after a series of government U-turns on the mini-budget failed to calm concerns about its economic credibility.
The British pound was up 0.74% to $1.1266 early on Monday, after touching $1.1305 on the news.
Chancellor of the Exchequer Hunt will issue an emergency statement on Monday on measures in the medium-term fiscal plan, the Treasury said in a statement. The full schedule is scheduled to be released on Oct. 31, the company said.
Since taking office on Friday, Hunt has signaled he will scale back the tax plans set out by his predecessor Kwasi Kwarteng in a mini-budget earlier in October. The British pound fell to an all-time low against the dollar and yields on British government bonds (gilts) surged as the tax plan stoked fears of faster inflation and spiraling government debt.
The unrest prompted Nobel laureate Paul Krugman to say that British markets were “behaving like the markets of a developing country”.
That, and political pressure on Prime Minister Liz Truss, has led to a series of reversals in tax plans in recent days. These include scrapping a planned rise in corporate tax to 25% from 19% and backing off a plan to cut the top rate of income tax to 45%.
Prior to Hunt’s announcement, analysts were skeptical of moves to stabilize markets, they say they don’t solve fundamental economic problems.
“By sacking her chancellor and partially reversing unfunded tax cuts, UK Prime Minister Truss may have bought time, but not a distraction from the gaping fiscal holes that remain,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, said on Monday.
Hunt is now expected to delay the planned cut in the basic rate of income tax by a year, The Sunday Times reported on Sunday, citing unidentified sources.
This latest development comes as the UK’s Office for Budget Responsibility, or OBR – the public body that analyzes public finances – predicts a shortfall of up to 72 billion British pounds, or $80.8 billion, in the public purse by 2027-2028. The Sunday Times.
The delayed tax cuts, originally planned for April 2023, are expected to save the UK Treasury £5 billion, or $5.6 billion, a year, The Sunday Times reports.
The Ministry of Finance and the Office for Budget Responsibility did not immediately respond to insiders’ requests for comment outside regular business hours.
The UK economy is on the brink of recession after a surprise drop in GDP of 0.3% in August. The economy also shrank 0.3% in the three months to August, the first contraction since the start of 2021 amid the COVID-19 pandemic. A recession is commonly defined as two consecutive quarters of decline in GDP.