New UK finance minister scraps tax plan, reins in energy support

In one of the biggest U-turns in British fiscal policy, new finance minister Jeremy Hunt scrapped Prime Minister Liz Truss' economic plan and reduced her significant energy subsidy on Monday to halt a sharp decline in investor confidence.

Hunt has now undone all of the policies that helped Truss win the position of prime minister less than six weeks ago. Hunt is tasked with stopping a bond market crash that has been raging since the government announced sizable unfunded tax cuts on September 23.

After Hunt's new strategy, which also includes spending cuts, sent the pound soaring against the dollar and government bond prices to start recovering from a three-week beating, her spokesman denied that Hunt was now in charge of the nation.

In a televised interview, Hunt stated, "I remain extremely confident about the UK's long-term economic prospects as we carry out our mission to go for growth. However, stability and confidence are necessary for growth, and the UK will always cover its costs.

The majority of Truss's unfunded tax cuts worth 45 billion pounds will be eliminated under the new proposal, and a two-year energy support program for households and businesses that was originally scheduled to last until April will now only last through April.

Following that, the government will consider the best course of action and develop a focused plan that "costs the taxpayer significantly less than planned."

The proposed tax cut changes, according to Hunt, would raise 32 billion pounds ($36 billion) annually. Following the announcement, the pound soared by as much as 1.4% to a session high of $1.1332.

Truss claimed that she was currently laying out a new course for expansion while still guarding stability. She wrote on Twitter, "We have moved to set a new course for growth that supports and delivers for people across the United Kingdom.

FIGHTING FOR SURVIVAL

When new prime minister Truss and her finance minister at the time, Kwasi Kwarteng, announced 45 billion pounds in unfunded tax cuts to jolt the economy out of years of stagnation, the latest crisis to hit British shores began on Sept. 23.

The plan would have been funded by bond investors, but their reaction was so vehemently negative that borrowing costs shot up and mortgage lenders withdrew their offers. Eventually, it became necessary for the Bank of England to take action to stop pension funds from failing.

Truss fired her longtime friend Kwarteng on Friday after rolling back one tax cut and replaced him with the former health and foreign minister Hunt to implement additional tax cuts.

Hunt was under additional pressure because the Bank stuck to its plan of ending its support on Friday, which meant he had to work quickly to change policies and find ways to reduce spending in order to calm the markets and stop borrowing costs from rising on Monday morning.

Despite Monday's rally, gilts continue to be damaged. The 10-year gilt yield is still about 46 basis points higher than it was on September 22, the day before the "Growth Plan" sent markets into a frenzy. The impact on British debt continues to be particularly severe, despite increases in yields for comparable German and American bonds over the same time period.

At a daily briefing, Truss's spokesperson was questioned about how the prime minister could maintain any credibility after she changed her mind about the policy that had made her famous.she was elected by party supporters.

He claimed that she was taking advice from the markets, her colleagues, and the general public. He said, "She is making the difficult but necessary decisions to change our strategy so we can maintain that stability of leadership which is important as well and provide the economic stability.

Her about-face has infuriated the lawmakers who had backed her and emboldened those who disagree with her to look for a way to remove her from office.

She was only most recently appointed to the position on September 6. She is the fourth British prime minister in six years.

A few of her lawmakers have already declared that she must leave. The opposition Labour Party's finance spokesperson, Rachel Reeves, asserted that the Conservative administration was no longer able to guarantee stability.

She declared, "The Conservatives have lost all credibility."

Hunt had been predicted to roll back some tax cuts, but the energy support program change was unexpected.

In order to help people and businesses through the period of skyrocketing energy prices, which would cost 60 billion pounds in just six months, Truss had announced a two-year subsidy program. The plan, according to Hunt's announcement on Monday, will now last through April before becoming more focused.

According to the Treasury, the new finance minister would still present a more comprehensive medium-term fiscal plan on October 31 along with projections from the independent Office for Budget Responsibility.

(1 dollar = 0.8887 pounds)