Nearly all of the tax cuts announced in the government’s mini-budget are being rolled back — here are seven things you need to know about the turnaround.
1. Let’s start with the fact that it wasn’t really just any U-turn. It was more.
Not only did it reverse the majority of policies in the mini-budget, it went further and reversed a Sunak-era plan to lower the basic income tax rate.
2. That this happened so quickly, and with more than half an eye on the markets, is symptomatic of a much bigger deal.
Government policy is not dictated by the Tory party or parliament, but by the financial markets. I can’t remember another occasion we’ve had that since Black Wednesday in 1992.
3. And markets were able to dictate policy because there is still a clear and present danger.
As I mentioned before, there is at least one fund, with an asset manager who was close to the brink this morning. A further rise in yields would have turned it around.
4. The good news is that today’s measures really seem to have given the markets some confidence again. Gold yields have now fallen significantly.
That, in turn, is weighing down expectations for Bank of England interest rates, which in turn is likely to push fixed-rate mortgages down. A great relief for everyone.
5. When it comes to calming the financial markets, this was by far the most successful government intervention since Liz Truss became Prime Minister. Yet she is nowhere to be seen.
The intervention came from an outsider; striking, but consistent with the fact that this is a credibility crisis.
6. The most groundbreaking of all measures was not even budgeted for today.
Changing the energy price guarantee from a two-year policy to a six-month policy can potentially save tens of billions. Maybe even £100 billion plus, but we don’t know because it depends on future gas prices.
7. Crucially, while today’s measures went further than most people expected, there is still a significant shortfall.
If Jeremy Hunt wants to lower the national debt, he will have to find another £30-40 billion in cuts and/or tax hikes, so there’s more to come.