UK fast-tracks tax and spending plans to calm markets

Jeremy Hunt, the UK chancellor, is set to dramatically rush forward billions of pounds of tax and spending measures on Monday, a fortnight earlier than planned, in an effort to calm markets.

The British treasury said that Mr Hunt, appointed chancellor on Friday, would announce measures at 11am to tackle the UK government’s deficit before making a statement to the House of Commons in the afternoon.

Mr Hunt agreed to the emergency statement with Liz Truss, the prime minister, on Sunday in a meeting at Chequers, after concluding the government could not afford another battering by the markets this week.

The British government had planned to announce the moves as part of a medium-term debt-cutting plan on October 31st. The date had already been moved forward from November 23rd.

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Ms Truss has already reversed £20 billion (€23.2 billion) of tax cuts since the disastrous “mini” budget on September 23rd, but that has not allayed concerns and gilt yields continued to rise on Friday.

“Salami slicing hasn’t worked,” admitted one senior government official. Market participants warned Ms Truss last week that unless she announced big new tax rises the chaos would continue.

The Institute for Fiscal Studies has said a £60 billion fiscal tightening will be required to make the sums add up, implying that Mr Hunt will have to go much further in reversing tax cuts, raising taxes and cutting spending.

A cut in income tax of one percentage point next April, costing about £5 billion, is expected to be put on hold, but that is only expected to represent the start of another series of U-turns.

A £13 billion cut in national insurance rates, contained in the “mini” budget and supported by Labour, is expected to survive, but Mr Hunt has said that all other measures in the ill-fated plan are on the table.

The treasury said on Monday morning: “The chancellor will make a statement later today, bringing forward measures from the medium-term fiscal plan that will support fiscal sustainability.

“This follows the prime minister’s statement on Friday, and further conversations between the prime minister and the chancellor over the weekend, to ensure sustainable public finances underpin economic growth.

“The chancellor will then deliver the full medium-term fiscal plan to be published alongside a forecast from the independent Office for Budget Responsibility on 31 October.”

Mr Hunt also met Andrew Bailey, governor of the Bank of England, and the Debt Management Office on Sunday to discuss the plans. — Copyright The Financial Times Limited 2022