Jeremy Hunt’s emergency statement sweeps away Kwarteng plans in attempt to stabilise the markets – reaction

by | Oct 17, 2022

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This morning, Chancellor Jeremy Hunt MP has confirmed in a brief statement, that the much-rumoured reports that all areas of Kwasi Kwarteng’s mini-budget which are not already going through parliament (ie stamp duty and the removal of the hike to NICs), will be shelved. It’s a dramatic intervention which went much further than market commentators had expected.

The biggest change announced  by Jeremy Hunt is that the government’s energy support guarantee scheme for homes will end in April 2023 when a  further review will be undertaken- rather than lasting for two years as originally announced. This is a huge reversal which went further than had been anticipated. It is also one which will have significant implications for struggling families trying to cope with the cost of living crisis at the same time as facing potentially big hikes in their mortgage payments.

As had been anticipated however, Hunt announced that the basic rate of income tax will now remain at 20% indefinitely rather than the cut to 19% as had been planned.

The immediate market reaction in the minutes following Hunt’s announcement was calm, but all eyes will be on the gilt market and currency as the hours unfold today and in the all important days ahead, to see whether this lasts.


Hunt will make a speech to the House of Commons at 3.30pm today regarding these sweeping changes which he has announced this morning. Whether it will be enough to steady the crisis of confidence in the markets, only time will tell.

Rachael Griffin, tax and financial planning expert at Quilter, has shared her thoughts on what the reversal of the 1% cut to the basic rate of income tax will mean commenting: 

“The government is now scrambling to show some semblance of credibility on tax and spending, as they dig their way out of Kwasi Kwarteng’s calamitous ‘mini budget’. The latest u-turn on a policy-that-never-was sees the reduction in income tax from 20% to 19% from April 2023 scrapped. The idea that you can cut taxes in search of growth is quickly being swept aside for austerity mark II.


“The 1% cut to basic rate income tax was first announced by Rishi Sunak, then brought forward by Kwarteng and has now been put on ice by Hunt indefinitely. The move will save the government £5 billion next year.

“Had the cut come into place in April 2023, an average UK earner on £30,000 a year would have paid £174 less in tax next year. However, they will still benefit from Kwarteng’s abolition of the 1.25 percentage point increase to national insurance which Hunt has kept in place, saving them around £218 next year. 

“A higher earner on an annual salary of £100,000 will now pay £377 more in income next tax year, while benefiting by more than £1,000 from Kwarteng’s previous national insurance hike reversal.


Table: What people would have saved prior to 1% income tax u-turn

Earnings 1% Basic rate cut saving per annum (scrapped) 1.25% NI saving per annum (remains) Total per annum pre IT u-turn
£20,000 £74.30 £92.88 £167.18
£30,000 £174.30 £217.88 £392.18
£40,000 £274.30 £342.88 £617.18
£50,000 £374.30 £467.88 £842.18
£60,000 £377.00 £592.88 £969.88
£70,000 £377.00 £717.88 £1,094.88
£80,000 £377.00 £842.88 £1,219.88
£90,000 £377.00 £967.88 £1,344.88
£100,000 £377.00 £1,092.88 £1,469.88

“Hunt had little choice but to act to not only shore up market confidence, but to help balance the books as the government faces a black hole in its finances following the pandemic and its energy price guarantee.

“The amount of Income Tax paid by UK taxpayers has almost doubled in the last 20 years, from £324.7 billion in 2002-03 to £633.4 billion in the tax year 2019-20, with the number of additional-rate taxpayers rising the fastest.

“It is clear that Hunt’s emphasis will be on balancing the books, so it is likely that tax allowances and thresholds are not going to become more generous any time soon. The income tax cut would actually have been net positive for government coffers by 2025/26 due to frozen thresholds catching more people in the tax net. As such, it is now even more vital for individuals to utilise the tax allowances they have as much as they can and take advantage of the situation today.”

Dr Ganesh Viswanath-Natraj, Assistant Professor of Finance at Warwick Business School, said:

“The Chancellor’s announcement this morning is a boost for the pound’s recovery, which is largely down to the Government’s proposed medium-term fiscal outlook on reducing the debt to GDP ratio. This signals to financial markets that Government debt is on a sustainable path, leading to a more stable demand for gilts by investors.

“In conjunction with this, the central bank is reining in its emergency bond buying program and has stated its commitment to further interest rate hikes in response to rising inflation.

“This kind of tightening of monetary policy can help to maintain the pound’s value as it makes sterling assets more attractive.”

Alastair Black, head of industry change at abrdn, said: “Disruption is a significant obstacle to effective long-term planning. “Today’s announcements mean advisers and clients will once again have to revisit their strategies. And, as the Chancellor has indicated, there’s the potential for even more disruption to come, meaning a lingering uncertainty that will need to be factored-in to every client plan.

“A key concern for clients is likely going to be what this means for interest rates. They’ll also have questions over the implications for medium-to-long term inflationary trends – particularly given that the energy price guarantee in its current form is now only going to last until April. Both of these will have wide-ranging implications on savings and investment decisions, as well as income requirements.

“Amid a sea of questions, what’s certain is that advisers will continue to be a source of both practical and emotional support for clients. This is yet another opportunity for the sector to clearly demonstrate the true value of advice.”

Linda Wallace, director of Wesleyan Financial Services said: “Today’s emergency statement represents a bonfire of the controversial economic policies announced just weeks ago.

“The reversal of the planned Corporation Tax cut snatches away a 6% saving on business profits, which would have helped to mitigate against rising operational costs.

“And the cancellation of the cut to Income Tax wipes out an albeit small increase to take home pay and means more help will be needed to ensure our members can cover their living expenses.

“At a time when we can confidently predict more interest rate increases piling further pressure on households and inflation at a record high, it’s going to be a tough winter for many.

“We know that people are accessing their savings and pensions to cover living expenses, which can have a significant impact on future retirement plans.”

Commenting on the changes in policy, RLAM Head of Multi Asset Trevor Greetham said:

“Never before has the outlook for UK public finances swung so dramatically, from the unfunded and uncosted profligacy of the Truss-Kwarteng plan to what can only be described as Austerity 2.0. Jeremy Hunt has cancelled almost all of the planned tax cuts at a saving of £32 billion while signalling further difficult decisions to come on both taxes and public spending.

“The boldest and most surprising element of this announcement was a review of energy support beyond April 2023 to target help more effectively, reduce the eventual cost to the tax payer and to make UK finances less dependent on the path of European gas prices during the Ukraine war.

“The bond markets should love what Hunt has to say and lower yields would help to reduce pension fund turmoil, but the strength of reaction may be tempered by concerns over political stability. There was no mention today of the raft of unpopular deregulatory measures, dubbed Operation Rolling Thunder by Downing Street aides, that were due to be revealed after 31 October. It remains to be seen if Prime Minister Liz Truss can remain in control of her party to push through what remains of her agenda.”

George Lagarias, Chief Economist at Mazars comments: “The UK’s new economic plan has been submitted to markets, which are expected to render judgement by the end of this week. Announcing a U-turn in terms of taxes and spending is providing some welcome short-term support for the Pound and UK long-term bonds. However, the Chancellor’s U-turn could still prove insufficient to appease investors, especially as the statement did not include the burning issue of financial sector regulation, which could prove very contentious with Europe. The final terms and conditions of Brexit will play a pivotal role in reducing volatility and removing Britain from the eye of the storm. It will take time and patience for the damage to the UK’s reputation to be undone; but it is far from impossible.”

“Meanwhile, global bond markets remain dislocated, and the UK is firmly in the sights of so-called ‘bond vigilantes’, who have, historically, exerted a lot of pressure on governments and central banks. In the past, the solution has come through general elections, technocratic governments and so on. Having said that, we believe that the UK is in a much stronger position than other countries. It has much lower debt, a broader economy and a great track record in keeping spending from getting out of control. For lack of a better word, it has ‘street credibility’, accumulated investor goodwill. There is damage for sure, but if British governments exhibit prudence and a willingness to reconcile with their largest trading partners, we think the damage can be reversed.”

Lewis Shaw, founder of Mansfield-based Shaw Financial Services  doesn’t see today’s reversal as the end of the matter however: Trussonomics has been shown to be an idiotic experiment perpetuated by talking heads within think tanks such as the IEA. Off the back of this, Liz is now PM in name only; she’s in office but not in power. We’ve got more instability to come as the Tories try to wrestle with their fractured internal ideologies between ultra-free-market libertarian proponents and the moderate side, of which few are left. Nevertheless, we know that we’re going to have a new PM, and behind the scenes, the 1922 committee will be away sorting out the mechanisms for it. If anyone knows of a time machine going spare so we can go back to 2015 and have chaos with Ed Miliband rather than the strength and stability David Cameron perpetuated, that would be great.”

Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial also sees plenty of potential for further trouble ahead as he comments:   “Liz Truss is in office, but not in power. Hunt is our de facto prime minister and Rishi Sunak is writing the budget. Truss is without authority, but she could claw it back if her supply side economic reforms still pass. I understand the reversals on tax Hunt has had to make, but reversing the proposed changes to IR35 is laying down his plan to change all of the supply side reforms, too, and this genuinely will be bad for growth. It will be very interesting to see what Hunt offers in the budget in a couple of weeks time for those who demand a high growth economy. He can’t simply increase taxes to these levels and not offer any reforms or forecasts for tax reductions in the future without getting crucified further in the polls.”

John Phillips, national operations director at Just Mortgages is of a like mind that things won’t go ‘back to normal’ any time soon as he comments: “With many of the key pledges of the ‘mini-budget’ now reversed or scrapped entirely, it seems this is far more than just a U-turn, but rather a cannonball to the new PM’s entire agenda.

“Nevertheless, the hope is the changes will bring back some much-needed confidence to the market and interest rates will begin to stabilise. It’s positive to see the pound already beginning to improve with this news. With the stamp duty change remaining as one of the few ‘mini-budget’ pledges to survive, there’s hope that, despite rising interest rates, confidence in the market will stay strong.

“It goes without saying that brokers shouldn’t expect things to now go “back to normal” as the market will remain unsettled. As a result, brokers will need to keep up the hard work to support those looking to move or remortgage. There are still 1.7 million people who will be coming off low fixed-term mortgages in the next year, who will now be facing tougher criteria, tightened affordability and more expensive mortgage options.

“There will be a generation of homeowners and house buyers unsure what their next step should be, desperate for solid financial advice to make sense of this rapidly changing market. Brokers are in the best place to respond to this demand and support those who will still want or need to make moves in the current climate.”


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