Truss’s dismissal of Kwasi Kwarteng indicates the end of the short-lived period of Trussonomics, with Hunt implementing significant fiscal policy U-turns in the hope of stabilising the financial markets and her vulnerable premiership in this current period of uncertainty.
Days into his appointment, Hunt has announced that he will cancel the majority of the tax and spending plans laid out in the Kwarteng September 23rd mini budget, excluding those that have not yet been legislated for. The mini budget had offered £45 billion of unfunded promises, with Hunt’s plans so far cancelling out £32 billion of these promises.
These policy changes aim to restore confidence in the financial markets following the meltdown of UK Government bond markets and soaring costs for households and businesses alike. However, this £32 billion only fills half of the fiscal black hole of around £70 billion caused by the mini budget disaster with ‘decisions of eye-watering difficulty’ lying ahead of Hunt in his own words.
The only tax announcements so far to survive Hunts dramatic over-hall were the reversal of the national insurance rise of 1.25%, costing £18.2 billion and stamp duty, costing £1.7 billion as these have already been legislated for. Among the controversial policies that were axed include: the corporation tax increase of 6%, the removal of the 45% top income tax bracket, the freezing of the alcohol duty rate, VAT free shopping for non-UK visitors and the blanket energy price cap of £2,500 per year, the latter being the most significant to many households already struggling to cope with the ever-worsening cost of living crisis.
The previous price cap would have held annual household gas and electricity bills at £2,500 for two years, however this prevision will only be in place until April 2023 with the justification of helping households through the winter before alternative measures are introduced to protect the most vulnerable. Data Analysts, Cornwall Insight predict that following the removal of this cap, typical energy bills could rise almost 2-fold up to £4,374 per annum.
The economic consequences are still to be seen following Hunt’s statement on 17th October, the UK’s long-term borrowing costs fell – however this was still above the pre mini budget level indicating that investors’ confidence is still to be completely restored. The value of the pound has also risen 2% against the dollar standing at $1.14, the largest single day increase since March 2020.
These changes will be taken by the Conservatives as a tepid success, Truss is not so fortunate as despite these reversals her premiership, has still not been fully re-claimed*.
These new policies are reminiscent of Cameron’s Austerity measures, but the then Treasury tax increases and spending cuts were offset by the Bank of England, which will not be done this time, likely leading to austerity worse than we know it, and a deeper period of recession.
*After the time of this article being written Truss had not yet resigned as PM but did as of 1:30pm 20.10.2022. Hunt’s position as Chancellor of the Exchequer is also no longer certain.
