ON MONDAY, Jeremy Hunt unpicked virtually every element of Kwasi Kwarteng’s mini-budget to calm financial markets and restore order to chaos.

The new Chancellor’s statement was a sobering reminder that although Prime Ministers serve with their colleagues’ consent, governments cannot survive without market confidence.

Mr Hunt said every Government’s core responsibility was to deliver economic stability.

“No government can control the markets. But every Government can give certainty about the sustainability of the public finances.”

His words were a damning implied indictment of the PM’s economic policy.

FULL REVERSE GEAR

The Chancellor’s words had an immediate effect on markets: the pound strengthened, and UK government bond yields fell to reduce the cost of government borrowing.

The statement might reduce the amount of a projected mortgage interest rise in November.

But make no mistake: the statement is a humiliation for the PM.

Every policy she’s trailed, trumpeted, and brought in has been chucked on the bin fire of her Government’s reputation.

Liz Truss sacked Mr Kwarteng because she did as she said and pursued a policy she endorsed enthusiastically.

The PM’s campaign slogan was “Trusted to Deliver”.

Her detractors pointed out that Liz Truss was pushed by the political winds and could not set her own course.

She’s tried setting her course and crashed the economy into an iceberg.

Moreover, her Cabinet colleagues must wonder whether they can trust the PM to stand behind them when they pursue a government policy she supports.

This is a government living hour-to-hour, in office but not in power, and with its key policies made by financial markets instead of ministers.

GOVERNMENT AIMS TO “REGAIN TRUST”

The Chancellor’s statement pulled no punches about the size of Ms Truss’s and Mr Kwarteng’s miscalculation and overconfidence.

Mr Hunt said: “The government is prepared to act decisively and at scale to regain the country’s confidence and trust.”

The painful use of the word “regain” underlines what the Government lost after September 23.

The Chancellor stated there would be “more difficult decisions” on tax and spending.

Mr Hunt is focused on lowering debt in the medium term and putting public finances on “a sustainable footing”.

Using the word “sustainable” implies the previous plan was unsustainable.

In light of this, government departments will be asked to find efficiencies within their budgets. The Chancellor is expected to announce further changes to its fiscal policy on October 31 to put the public finances on a sustainable footing.

TAX CUTS SCRAPPED

The Chancellor announced a reversal of almost all of the tax measures set out in the Growth Plan that have not been legislated for in parliament.

The following tax policies will no longer be taken forward:

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 happen “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 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. This will cut the Government’s growth plan’s cost 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 February 1 2023, for a year. Not proceeding with the freeze is worth approximately £600 million a year.
This follows from the previously announced decisions not to proceed with the Growth Plan proposals to remove the additional income tax rate and to cancel the planned increase in the corporation tax rate.

The changes are estimated to be worth around £32 billion a year.

That still leaves the Government with a lot to find to plug the hole in its finances, which indicates more pain will follow in public spending.

The Government’s reversal of the National Insurance increase, the Health and Social Care Levy, and the Stamp Duty Land Tax cuts will continue to benefit millions of people and businesses.

The £1 million Annual Investment Allowance, the Seed Enterprise Investment Scheme and the Company Share Options Plan will continue supporting business investment further.

ENERGY BILL SUPPORT TO CHANGE

In September, the Government announced massive financial support to protect households and businesses from high energy prices.

The Energy Price Guarantee and the Energy Bill Relief Scheme support millions of households and businesses with rising energy costs.

The Chancellor made clear they will continue to do so from now until April next year.

However, looking beyond April, the Prime Minister and the Chancellor have agreed that it would be irresponsible for the Government to continue exposing the public finances to unlimited volatility in international gas prices.

A Treasury-led review will therefore be launched to consider how to support households and businesses with energy bills after April 2023. The review’s objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.

The Chancellor also said in his statement that any support for businesses will be targeted to those most affected and that the new approach will better incentivise energy efficiency.

“CHAOS AT THE HEART OF GOVERNMENT”

Rebecca Evans, Wales’s Finance Minister, responded: “The complete unravelling of the mini-budget shows the chaos at the heart of the UK Government.
“In six short weeks, the UK Government’s reckless and flawed economic policy has caused mayhem in the financial markets, pushed up mortgage costs and stretched household budgets even further.
“Now the UK Government is rolling back on its energy price support scheme for households, which will only add to the uncertainty people face as they worry about paying their bills.
“The new Chancellor has signalled a new era of austerity to start to fill the hole in public finances.
“We will all pay for the Government’s mistakes. But this is a crisis made in Downing Street and one it needs to address.
“The Chancellor needs to use his next financial statement to provide reassurance we will not see the deep spending cuts that will affect jobs, services and our economy – and to provide support to vulnerable households who have been ignored today.”