London tries to reassure the markets by tackling the measures of Liz Truss

A humiliating disavowal for Prime Minister Liz Truss whose days in Downing Street seem numbered. The new British Finance Minister Jeremy Hunt announced on Monday that he was canceling “almost all” of the tax cuts unveiled last month.

The new Chancellor of the Exchequer, who will speak in Parliament later on Monday, has advanced the outline of Britain’s medium-term budget plan due to be presented in full on October 31, attempting to calm markets. The latter have been plunged into turmoil since the presentation, at the end of September, of plans for massive tax cuts and colossal support for energy bills. Not fully quantified and to be financed by borrowing, they had raised fears of an exit from the road of public finances.

‘Other tough decisions’ are ahead

The International Monetary Fund (IMF) had urged Downing Street to correct the situation and work with the central bank, which is fighting inflation at nearly 10% and found itself against the tide of the economic plan of Liz Truss, inflationary over time. Urgently appointed on Friday after his predecessor Kwasi Kwarteng’s “growth plan” plunged British markets into turmoil, Jeremy Hunt therefore hammered home on Monday during a televised statement that the government’s priority was now to restore ” stability “. Even if it means limiting long-term aid to households in the face of the dramatic soaring energy prices.

“No government can control the markets. All governments can give guarantees of the sustainability of public finances,” the minister stressed. “Other tough decisions” are ahead for government spending like taxes, he further warned.

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Among Monday’s announcements, “the biggest expense,” the cap on energy bills for all households, “a flagship measure to help millions of people through a harsh winter,” will finally be in effect until April only and not more for two years. Beyond that, the Treasury will reflect on a new approach which “will cost the taxpayer significantly less while providing assistance for the most needy”.

Market relaxation

In the long list of tax cuts that go to waste, Jeremy Hunt listed the project of duty-free shopping centers for non-residents, the lowering of the tax rate for dividends , that of the income tax rate for the first income bracket at 19% from April 2023. However, the reduction in the tax on real estate transactions and the cancellation of a levy intended for the financing of health services.

Two notable reversals had already been announced: a reduction in the tax rate for the wealthiest incomes was canceled and a rise in corporation tax which had been planned under Boris Johnson will finally take place.

All of these tax measures “will raise about 32 billion pounds per year,” said Jeremy Hunt. Investors reacted positively to these statements: the British currency rose 1% to 1.1285 dollars around 10:45 GMT and the yield on 30-year bonds fell to 4.40%.

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