Update 17 October 2022: The new Chancellor Jeremy Hunt has announced a major U-turn on nearly all of his predecessor’s tax cuts as part of the ill-fated mini Budget last month. This includes the 1p cut for basic income taxpayers, as expected. See YourMoney.com’s Chancellor dumps almost all tax cuts announced in mini Budget for more information.

Just a day in the job, Jeremy Hunt said “the drive on growing the economy is right”, but admitted “we went too far, too fast”.

It comes after his predecessor Kwasi Kwarteng was sacked after just 38 days in the job, following his bombshell un-costed mini Budget last month which set markets on the path to mayhem.

One of the measures announced was a 1p cut to the basic rate of income tax from April 2023, resulting in 31 million people saving an average of £170 a year, at a cost of £5bn to the government.

But other measures included scrapping the additional rate of income tax for those earning £150,000+ and cancelling the planned rise in corporation tax from 19% to 25%.

Instead of restoring confidence, it gave investors the jitters, causing the markets to go into meltdown as gilt yields soared, the pound slumped to a record low against the dollar and mortgage rates spiked.

The Bank of England was forced to step in with its temporary bond-buying programme to restore stability, which ended on Friday – the same day that Hunt replaced Kwarteng as Chancellor.

And during this time, the ‘growth plan’ changes to the additional rate of income tax and corporation tax were scrapped, in an embarrassing U-turn for the government.

Rumours of delay to income tax cut

Speaking on Saturday, Hunt said: “We have to be honest with people and we are going to have to take some very difficult decisions both on spending and on tax to get debt falling but the top of our minds when making these decisions will be how to protect and help struggling families, businesses and people.”

He added: “I will set out clear and robust plans to make sure government spending is as efficient as possible, ensure taxpayer money is well spent and that we have rigorous control over our public finances.”

Ahead of the medium-term fiscal plan scheduled on 31 October, media reports over the weekend suggested Hunt is going to delay the 1p cut to income tax – marking a trio of U-turns for the Conservatives.

He is expected to make a statement today (Monday 17 October), bringing forward measures from the medium-term fiscal plan “that will support fiscal sustainability”.

A statement from the Treasury, read: “This follows the Prime Minister’s statement on Friday, and further conversations between the Prime Minister and the Chancellor over the weekend, to ensure sustainable public finances underpin economic growth.

“The Chancellor will then deliver the full medium-term fiscal plan to be published alongside a forecast from the independent Office for Budget Responsibility on 31 October.

“The Chancellor met with the Governor of the Bank of England and the Head of the Debt Management Office last night to brief them on these plans.”

‘Restore orderly market conditions’

Meanwhile, following the conclusion of the Bank of England’s bond-buying programme, a statement from the Bank of England, read: “At the outset of the intervention, the Bank said that it would carry out temporary purchases on whatever scale was necessary to restore orderly market conditions. As intended, these operations have enabled a significant increase in the resilience of the sector.”

Essentially, the Bank’s emergency response was to prevent a Northern Rock-style run on pension funds as gilt yields soared. Gilt yields also effect the mortgage market, meaning rates rocketed to 6%.

The governor of the Bank of England, Andrew Bailey, said at the Annual International Banking Seminar in Washington DC, this weekend: “We will not hesitate to raise interest rates to meet the inflation target. And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”

Gilt yields fall as pound recovers

AJ Bell investment director Russ Mould, said: “Gilt yields have fallen sharply, the pound is higher and unless Hunt stuffs up his early trailer of new fiscal measures, it seems the government has bought itself some breathing room with the financial markets. This is particularly reassuring given the Bank of England has, officially at least, concluded its intervention in the gilt market.

“Longer term, there are big questions about the impact of what looks like being hefty real-terms cuts to public services. However, in the short term, Hunt, like a professional problem solver brought in to steady an ailing business, seems to have done what was required. Even if it meant tearing up much of the mini Budget and starting again.

“The FTSE 100 is steady, no mean feat given it is not helped by the relative strength in the pound, and housebuilders are higher amid hopes the mortgage markets might start to stabilise.”