New Chancellor Jeremy Hunt has dramatically scaled back support for household energy bills and ditched tax cuts promised by his predecessor Kwasi Kwarteng as he seeks to restore stability following weeks of turmoil on the financial markets.
In an emergency statement, Mr Hunt said the energy price guarantee – which had been due to cap prices for two years – will end in April after which time the Government will look to target help on those most in need.
He said that he is abandoning plans to cut the basic rate of tax by 1p – which had been due to be brought forward to April – and that it would remain at 20p in the pound until the country can afford to reduce it.
The cut in dividend tax promised by his predecessor will also go, along with VAT-free shopping for overseas tourists, the freeze on alcohol duty and the easing of the IR35 rules for the self-employed.
The Chancellor warned of spending cuts ahead: “There will be more difficult decisions, I’m afraid, on both tax and spending as we deliver our commitment to get debt falling as a share of the economy over the medium term.
“All departments will need to redouble their efforts to find savings and some areas of spending will need to be cut.
“But as I promised at the weekend, our priority in making the difficult decisions that lie ahead will always be the most vulnerable and I remain extremely confident about the UK’s long-term economic prospects as we deliver our mission to go for growth.”
The government will continue with its planned cut to stamp duty and its reversal of the 1.25 percentage point increase in national insurance contributions.
Mr Hunt said his tax cut reversals will raise some £32 billion a year as part of efforts to get the public finances back on track.
Prime Minister Liz Truss held a political Cabinet call at 10am to discuss the decision to scrap the mini-budget measures.
The Chancellor set out the “worsening global economic situation, with interest rates rising around the world as monetary policy returns to a sense of normality”, a No 10 source said.
“Because of this, the Government is adjusting its programme while remaining committed to long-term reforms to improve growth such as investment zones and speeding up infrastructure projects.”
In response to today’s statement, the pound has strengthened and UK government bonds have rallied further.