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Sterling made gains against the dollar today after the UK’s new Chancellor of the Exchequer announced a reversal of most tax measures from last month’s widely criticised mini budget.
Jeremy Hunt, who was appointed by embattled UK Prime Minister Liz Truss on Friday to replace Kwasi Kwarteng, said the decision to cap energy prices for two years, at a cost of £80 billion ($90.1 billion) had been reduced to six months, because it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices.
The plan to cut the basic rate of income tax from 20p to 19p was also frozen indefinitely under new plans announced by Hunt, who is the UK’s third new Chancellor since the resignation of Rishi Sunak ahead of the toppling of former Prime Minister Boris Johnson.
Other tax cuts to dividend taxes, payrolls, a new VAT-free shopping scheme, a freeze on alcohol duties have also been reversed in Hunt’s announcement.
Hunt said the changes to the mini-budget will raise £32 billion more in tax per year, but warned there will be further difficult decisions ahead with more changes to tax and government spending.
The pound started to gain against the dollar ahead of the statement, which was made this morning UK time, and has seen gains of around 1% to reach $1.13 this afternoon, having fallen to historic lows on the original mini-budget announcement at the end of September.
The cost of government borrowing also reduced after the statement following a tumultuous period in the UK gilt markets.
There was an earlier sterling rally two weeks ago on Truss’s first U-turn, which saw Kwarteng scrap a highly controversial decision to remove the UK’s top tax rate of 45p.
Kwarteng’s sacking on Friday and an £18 billion U-turn on corporation tax, which will see it rise to 25% in April, have not been seen as enough to reassure the markets however, and Hunt’s statement which was planned for the end of this month,was brought forward to today.
(Reporting by Imogen Lillywhite; editing by Seban Scaria)
