Markets react as special measures regime lights a bonfire of tax cuts
Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown:
‘’With the government in special measures, no part of the Truss administration’s plans are immune from being ripped down and thrown out in the quest for stability. As the UK government has dramatically climbed down, the pound has been wracked with a fresh bout of volatility falling back from above $1.13. But crucially government borrowing costs have crept further down, with 10-year gilt yields dipping below 4%.
The Prime Minister’s authority is now so diminished that even her centrepiece strategy to alleviate the cost-of-living crisis is being sharply curtailed with the freezing of household energy bills coming to an end in April. What was meant to be two years of support has been slashed to just six months. The cost to the government was potentially open ended given the volatility in energy prices, and that with unfunded tax cuts piled on top amid escalating inflation, was what spooked the markets.
A bonfire of her tax plans is ablaze with only the reversal of the National Insurance rise and the stamp duty cut surviving the flames. There will no longer be a cut to dividend tax rates, the cut in the basic rate of income tax has been postponed indefinitely and there will be no changes to the way self-employed people are currently taxed. The freeze on alcohol duty rates will be scrapped and the tax-free shopping scheme for tourists will also be axed. These measures will help make up a £32 billion pound black hole in the government’s finances. A new fiscal broom is sweeping away the mess of the old mini budget into but it’s also looks increasingly likely that it will also eventually wipe out the brief Prime Ministerial career of Liz Truss.’’
