LONDON (Reuters) – New Chancellor of the Exchequer Jeremy Hunt sought on Monday to rebuild investor confidence in Britain by scrapping all of Prime Minister Liz Truss’s mini-budget that sparked market turmoil and curbing a massive energy subsidy plan.
Tasked with stemming the bond market rout that has erupted since the government announced massive unfunded tax cuts on September 23, he said the country now needed to raise taxes and cut spending to rebuild stability and confidence.
The former health and foreign minister has now reversed almost every program that helped Truss win the ruling Conservative Party leadership just over a month ago, leaving the prime minister fighting for her future.
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The two-year energy subsidy scheme for households and businesses, expected to cost more than £100 billion, will now expire in April and be replaced by a more targeted scheme that will “cost the taxpayer significantly less than planned”.
The pound rose 1.4% to a session high of $1.1332 following the statement. The last time it was just under 1% at wide where it was right before the announcement.
British government bonds rose strongly after Hunt’s statement and are on track for one of the biggest daily price increases since records began.
“We will reflect nearly all of the tax measures announced in the growth plan three weeks ago that did not initiate parliamentary legislation,” Hunt said.
He said changes to the planned tax cuts would raise 32 billion pounds ($36 billion) each year.
“I remain fully confident about the UK’s long-term economic prospects as we deliver on our growth mission,” Hunt said in a televised clip. “But growth requires confidence and stability, and the UK will always push its way.”
Total reverse
The government was forced to reverse course after markets reacted violently to Truss’ plan, hitting the value of the pound and government bond prices and forcing the Bank of England to step in to protect pension funds.
Adding to the pressure, the bank stuck to its schedule to end subsidies on Friday, meaning Hunt was racing to reverse policies and find spending cuts to satisfy markets and prevent borrowing costs from rising further Monday morning.
He said government spending cuts would be needed to narrow the gap in public finances which the Sunday Times reported could be as high as 72 billion pounds ($81 billion).
The near complete reversal of the economic plan leaves Truss struggling to retain credibility. Her conversion in turn angered lawmakers who supported her, and encouraged those who opposed her to try to find a way to remove her from power.
The fourth British Prime Minister in six years, she was previously appointed to the position only on September 6.
And a few lawmakers have already said it should go. The opposition Labor Party’s finance spokeswoman, Rachel Reeves, said the Conservative government could no longer provide stability.
“The conservatives have lost all credibility,” she said.
While Hunt was expected to reverse some tax cuts, the change to his energy subsidy scheme came suddenly.
Truss had announced a two-year support plan to support families and companies during the period of high energy prices, which will cost 60 billion pounds in just six months. On Monday, Hunt said the scheme would now run through April but became more targeted after that.
The Finance Ministry said the new finance minister will continue to present a full medium-term fiscal plan as scheduled on October 31, along with forecasts from the Independent Office for Budget Responsibility.
(dollar = 0.8887 pounds)
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Written by Kate Holton; Additional reporting by Elizabeth Piper, Andrew McCaskill, Sarah Young, Andy Bruce, Movija M, Sachin Ravikumar; Editing by Jerry Doyle, Kate Holton and Alex Richardson
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