Mixed reactions as Chancellor reverses almost all tax measures from the mini-Budget

 In a televised address, Hunt confirmed the government would “reverse almost all the tax measures announced in the Growth Plan three weeks ago that have not started parliamentary legislation”, explaining: “We will no longer be proceeding with the cuts to dividend tax rates, the reversal of off-payroll working reforms introduced in 2017 and 2021, the new VAT-free shopping scheme for non-UK visitors, or the freeze on alcohol duty rates”, and confirmed the income tax basic rate cut from April 2023 would no longer go ahead.

 “The basic rate of income tax will remain at 20%, and it will do so indefinitely until economic circumstances allow for it to be cut,” Hunt said. “Taken together with the decision not to cut corporation tax, and restoring the top rate of income tax, the measures I’ve announced today will raise every year around £32bn.”

 The abolition of the Health and Social Care Levy and the stamp duty changes that former chancellor Kwasi Kwarteng announced in his mini-Budget will still go ahead, he added; and the Energy Price Guarantee – “the biggest single expense in the Growth Plan,” Hunt said – would not be provided beyond April 2023, with a Treasury-led review to be conducted into how the government would support energy bills after that.

Hunt said these market-sensitive decisions were being announced ahead of his statement to the House of Commons the same day to give confidence and stability, and that the government’s decision to announce further changes to the mini-Budget ahead of the medium-term fiscal plan on 31 October was “to reduce unhelpful speculation about what they are”.

In particular, Hunt said it was the wrong time to fund a basic rate of income tax cut when markets are looking for sustainable public finances. “No government can control markets, but every government can give certainty about the sustainability of public finances.”

While Hunt concluded that there would be “more difficult decisions” ahead, on both tax and spending to get debt falling as a share of the economy over the medium term, Treasury Select Committee chair Mel Stride hailed Hunt’s announcement as a “positive move” but warned there was “probably” a £40bn gap still to plug. Nevertheless, the pound rose slightly against the dollar during Hunt’s speech to just above $1.13, while the Financial Times reported gilts had rallied. Hunt made no mention about Kwarteng’s plan to abolish the cap on bankers’ bonuses.

Institute of Directors chief economist Kitty Ussher said: “We are relieved the employers’ national insurance reversal will proceed, since… it only added to the supply-side pressures [our members] were experiencing [and] given the difficult investment climate, it is also sensible to maintain the Annual Investment Allowance at the higher figure of £1m.”

However, Martin McTague, chair of the Federation of Small Businesses, said the decision to “de-couple” those paid through dividends from the reduction in National Insurance will be “a blow to many small business owners trying to keep their heads above water – dividend taxation doesn’t just hit investors: it hits hard-working entrepreneurs with bills to pay”. He called for the government to revisit this decision later as public finances allow, along with IR35 and the level at which the 25% corporation tax rate applies. McTague called for legislation to pass “swiftly in both chambers of Parliament, today, so cash can reach small businesses next month – a lifeline for many facing a tough winter”, adding that the forthcoming energy support review “must avoid a cliff-edge for small firms that remain impacted and vulnerable”.

Small businesses “need economic conditions to improve and sky-high operating costs brought down in order for them to be front and centre of future economic recovery”, McTague added.

“There are significant recessionary pressures causing severe problems for small firms and the people who work for them; while the chancellor has focused on reassuring markets today, the government must combine this with pro-growth measures that support the real economy.”