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Liz Truss's mini-budget U-turns: What has changed?

UK prime minister Liz Truss. Photo: Daniel Leal - WPA Pool/Getty
UK prime minister Liz Truss reversed on key pledges in the mini-budget. Photo: Daniel Leal - WPA Pool/Getty

Liz Truss addressed the nation in a very short press conference on Friday and rowed back on a key part of the £43bn of unfunded tax cuts pledged in the mini-budget on 23 September.

It comes as the government's controversial fiscal plan caused market turmoil, a slump in the pound, a bailout of pension funds by the Bank of England, and rising mortgage rates.

The PM reinstated a planned increase in corporation tax from April, after she U-turned on the 45p top rate income tax earlier this month.

If you are struggling to keep up with the rollercoaster ride that is Britain's economy and politics, here's what has happened so far.

Watch: Liz Truss U-turns on corporation tax and admits her plan ‘has to change’

Corporation tax

Corporation tax will now rise from 19% to 25% this Spring. It had been due to go up before cuts were announced as part of the mini-budget last month. Truss said that the reversal will raise £18bn a year.

The move was originally planned by former chancellor Rishi Sunak under Boris Johnson's government.

The corporation tax cut was the heart of Truss's Tory leadership manifesto, and backtracking on it could put her premiership in trouble as she tries to hang on to her job after three weeks of turmoil in financial markets.

Read more: Liz Truss reverses plan to scrap rise in corporation tax in another U-turn

How record high US inflation can hit UK markets, the pound, and 'Trussonomics'

Truss confirmed that "parts of our mini-budget went further and faster than markets were expecting", adding that the government needs to "act now to reassure the markets of our fiscal discipline."

Although she ruled out resigning, she said: "I want to be honest, this is difficult, but we will get through this storm. And we will deliver the strong and sustained growth that can transform the prosperity of our country for generations to come."

Despite the U-turn, the prime minister pledged to see through her low-tax agenda, saying her mission remains the pursuit of a "low-tax, high-wage, high-growth economy".

According to that is a "down payment" on the medium-term fiscal plan on 31 October when the government will set out how it intends to get the public finances back on track.

"We will do whatever is necessary to ensure debt is falling as a share of the economy in the medium term," Truss said.

Former chancellor of the exchequer Kwasi Kwarteng (L) and UK prime minister Liz Truss. Photo: Leon Neal/Getty
Former chancellor of the exchequer Kwasi Kwarteng (L) and UK prime minister Liz Truss. Photo: Leon Neal/Getty

Top rate income tax

Earlier this month, Truss also scrapped the planned abolition of the 45p top rate income tax in a dramatic U-turn after the controversial move sparked market turmoil and backlash from within the Tory party.

The rowing back came just 10 days after then chancellor Kwasi Kwarteng announced the disastrous move in his mini-budget.

Kwarteng said at the time that it was clear the cut had "become a distraction from our overriding mission to tackle the challenges facing our country".

The move would have seen the 45% rate on earnings over £150,000 abolished, and would have been paid for by borrowing around £2bn annually.

The not so mini fiscal plan that was intended to boost UK growth, has spooked investors, and sent the pound to a record low against the dollar.

Read more: Pound pares losses as Jeremy Hunt appointed chancellor after Kwarteng sacking

Sterling's fall produced higher import prices, while surging mortgages resulted in warnings of a crash in the housing market, and concerns about skyrocketing borrowing costs.

It also forced the Bank of England to take emergency measures, committing to buy £65bn in bonds to calm gilt markets after a sell-off — which is due to end on 14 October.

The pound has since recovered from session lows, while gilts are headed for the biggest weekly rally since 2011 as markets assess the economic and political turmoil.

"Liz Truss’ mini-budget was seen as overly aggressive, with her tax proposals and spending initiatives viewed as unsustainable," Dan Ashmore, analyst at Invezz said. "Tax cuts sound great, but money doesn’t grow on trees, and these cuts are unfunded. This has shot confidence in the UK economy."

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Kwarteng ousted after arriving back to UK

Truss pulled another rabbit out her hat on Friday when she unexpectedly sacked her chancellor Kwasi Kwarteng who was summoned to return early from the annual IMF summit in Washington.

Kwarteng had just on Thursday said he had no intention to go anywhere and would see Britain's growth plan through as he prepared his Halloween fiscal package.

The former chancellor, a close ally of Truss, in his outgoing letter to the PM, said he had accepted her decision to sack him.

"You have asked me to stand aside as our chancellor. I have accepted," he wrote on Friday, stressing that Truss’s vision was "the right one".

Read more: UK bonds swing as traders scrutinise new chancellor Jeremy Hunt

His tenure makes him the UK's second shortest-serving chancellor on record after just 38 days in the job, behind Iain Macleod, who died of a heart attack 30 days after taking the role in 1970.

His successor Jeremy Hunt, is now expected to deliver the pushed forward stimulus package that will be announced alongside economic forecasts from the Office for Budget Responsibility on 31 October.

Hunt becomes Britain's fourth chancellor this year, after Sunak, Nadhim Zahawi and Kwarteng.

This means that the plan will now come before the Bank of England's next interest rates decision on 3 November, a key demand from Commons Treasury Committee chair Mel Stride.

The chair previously expressed concern that the government needed to calm markets earlier and reduce upward pressure on rates that’s affecting the mortgages of millions of homeowners.

Watch: Kwasi Kwarteng sacked as Chancellor

What remains of the mini-budget?

The planned reversal of the 1.25% rise in national insurance contributions (NICs) will go ahead on 6 November, while a tax hike to fund health and social care will still be axed.

Meanwhile the pledge to cut income tax by 1% from 2024 to 2023, will also go ahead. The basic rate of income tax will be cut to 19p in April 2023, Kwarteng said this means a tax cut for over 31 million people.

The energy price guarantee to freeze bills at £2,500 a year until 2024 from October, and the six-month business equivalent will remain.

As will the confirmed cut in stamp duty to encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder.

The government has not yet announced plans to abandon scrapping a cap on banker bonuses as millions struggle to keep up with the rising cost of living.

Additionally, the government is likely to press ahead with the creation of 38 investment zones across the UK – areas with lower taxation and planning rules.