Mini Budget U-Turn
A dramatic mini budget U-Turn was witnessed last week. The Chancellor is reversing the plan to scrap the 45p top rate of income tax announced at the end of September in the Mini budget. This decision comes after several Tory MPs voiced their opposition to the proposed plan. Why? The government had been planning to borrow money to fund the tax cuts for the richest.
The mini budget U-Turn – 45p tax cut – triggered turmoil in the City of London, and was criticised by the International Monetary fund. The initial mini budget, resulted in a £65 billion emergency intervention by the Bank of England in the form of a temporary bond-buying programme.
The Bank of England will buy as many long-dated government bonds as needed between now and 14 October in a bid to stabilise financial markets in the wake of the mayhem that followed the government’s mini-budget last Friday.
Mr Kwarteng said of the Mini Budget U-Turn that the 45p tax cut “had become a distraction from the overriding mission to tackle the challenges facing our country”. He continued: “As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it and we have listened”
At a time when households across the country are facing a cost of living crisis has been condemned, as the plan was not only to axe the 45p income tax rate but also scrap curb bankers bonuses.
Liz Truss showed little support for the Chancellor by saying “it was a decision the Chancellor made”
It is understood the debt plan has been brought forward and will now come “shortly” rather than the previous date of Wednesday 23 November. It is likely to be released by the end of the month, a treasury source told
What details will be released?
The “medium-term fiscal plan” is expected to outline how the Government plans to manage the UK’s debt, and how its mini-Budget tax cuts will be paid for.
Liz Truss has not confirmed she will up-rate benefits in line with inflation, and is instead expected to announce plans to raise benefits around 5.4 per cent in line with earnings, in a move that would save the Government around £5bn.
Speaking on BBC Radio 4’s Today programme on Tuesday, Ms Truss said: “We are going to have to make decisions about how we bring down debt as a proportion of GDP in the medium term.”
The fiscal plan will be released alongside published forecasts from the OBR, the UK’s independent budget watchdog. These will scrutinise how the Government’s tax-cutting agenda will be costed, and reveal whether public spending cuts are needed to avoid an unsustainable debt spiral. It will also publish forecasts for economic growth.
Why is it being brought forward?
The Chancellor and the Prime Minister faced a backlash from within their own party and in the opinion polls over the mini-Budget and the market turmoil that it caused.
One poll, on September 29, gave Labour a 33-point lead over the Conservatives, showing that 54 per cent of voters would back Labour if a snap election was called.
At the start of the Conservative Party conference, both faced calls to calm markets and offer clarity.
Mr Kwarteng was pressed on the BBC Today programme on Monday as to why the public should have to wait so long for details of how the mini-Budget will be costed.
He replied: “What I said at the time, is that we will have a medium-term fiscal plan in the next few weeks, which will show, reveal, how the spending side of the ledger will look.”