Chancellor warns of tax rises and squeeze on spendingon October 15, 2022 at 4:46 pm

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Jeremy Hunt warns of difficult decisions ahead, as he signals major changes to Liz Truss’s economic plans.

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Difficult decisions will be needed “across the board” on tax and spending, the new chancellor has said.

Jeremy Hunt told the BBC that some taxes will go up, while government spending may need to fall.

He said he had a clean slate after Prime Minister Liz Truss sacked Kwasi Kwarteng and announced another mini-budget U-turn on a dramatic day.

Cutting the top rate of tax and not independently costing measures were mistakes being “put right”, he added.

Less than 24 hours into his new role, Mr Hunt was signalling a big shift away from the economic policies of his predecessor and Ms Truss.

She is facing growing pressure from within her party, with serious discussions continuing among MPs about whether she can carry on as PM.

With plans to cut the 45p rate of tax for high earners and corporation tax now both scrapped, Mr Hunt has indicated he plans to implement further changes to September’s mini-budget, telling BBC Radio 4’s Today Programme he had a “clean slate”.

Those changes include hikes to some taxes, as well as potential cuts to public spending, though he refused to outline any details just hours into the job.

“Taxes are not going to come down by as much as people hoped, and some taxes will have to go up,” he told the Today Programme.

“I’m going to be asking all government departments to find additional efficiency savings.”

Mr Hunt also refused to rule out cuts to NHS spending or rowing back on Ms Truss’s pledge to increase defence spending to 3% of GDP.

The challenge facing Mr Hunt, as he sees it, is to “show the world we have a plan that adds up financially”.

“I’m doing this job because, despite all those difficult decisions, I have incredible long-term confidence in our country,” he said.

But in appointing Mr Hunt, a Rishi Sunak supporter in the leadership contest, Ms Truss’ flagship policies are now looking uncertain. Her position as PM, and her “Trussonomics” policies, are in doubt.

Ms Truss, prime minister for just 39 days, is already facing pressure from within her party following September’s mini-budget, which included £45bn worth of tax cuts and sparked turbulence in the financial markets.

On what he described as the two mistakes made in that budget, Mr Hunt said: “It was wrong to cut the top rate of tax for the very highest earners at a time where we’re going to have to be asking for sacrifices from everyone to get through a very difficult period.

“And it was wrong to fly blind and to announce those plans without reassuring people with the discipline of the Office for Budget Responsibility (OBR) that we actually can afford to pay for them.”

He said both of these were now in the process of “being put right”.

The chancellor made a series of points about the government’s mini-budget and discussed possible plans for his new role in his interviews with the BBC:

  • Mr Hunt said there were two mistakes in the mini-budget – cutting the 45p rate of tax for top earners and announcing the package without independent costings
  • He said he hoped to keep the 1% cut to the basic rate of income tax, but that no decisions had yet been made
  • He said he would keep the energy price guarantee and praised the former chancellor for implementing it
  • He said some taxes will need to go up
  • He is asking government departments to find “efficiencies”, meaning possible cuts to spending
  • He refused to rule out cuts to NHS spending, nor did he rule out row-backs on Liz Truss’s pledge to boost defence spending
  • He also refused to commit to a pledge by Boris Johnson’s government to raise benefits in line with inflation, though he said he was mindful of the needs of the most vulnerable

The prime minister is facing a backlash from Conservative MPs after announcing the government’s second U-turn in a month.

She now risks not leading on the economy to ease the markets and also not being the unifying leader the party feels it needs – with many MPs concerned her performance at Friday night’s press conference didn’t offer them reassurance.

Jeremy Hunt arriving at the BBC on Saturday

Image source, Reuters

At that conference, she described sacking Mr Kwarteng and scrapping another key economic policy as “difficult” and admitted that “parts of our mini-budget went further and faster” than the markets were expecting.

Some MPs have told the BBC that “at least” her predecessor Boris Johnson managed at times to get the morale even of his critics up when things looked bad for them.

Some Tory MPs feel Mr Hunt’s appointment has “bought them time”. But some who backed Ms Truss during the leadership contest are annoyed at the U-turns on some of her plans.

One Tory MP described the party as being in a “state of despair”, but Truss supporter Christopher Chope said “time will tell” if she had done enough to secure her position.

Those who did not like her policies think she is not fit for the job.

She still has many more fires to fight too on policy – with live rows going on in the party at the moment over possible spending cuts, her plans to bring back fracking, her plans to change planning and housebuilding rules to name but a few.

Labour leader Sir Keir Starmer has accused the prime minister of “grotesque chaos” following the sacking of the former chancellor. He is calling for a general election.

During a speech in Barnsley a day after the upheaval in Westminster, Sir Keir said Ms Truss was “clinging on”, arguing that there was “no historical precedent” for the current situation facing her government.

But Mr Hunt told the BBC that the country needs “stability”.

“[Truss] has been prime minister for less than five weeks. When we are judged at a general election, we will be judged by what we deliver over the next 18 months by far more than what’s happened over the last 18 weeks.”

But Mr Hunt is inheriting a “difficult and tricky situation”, according to director of the Institute for Fiscal Studies Paul Johnson.

“[We are] certainly looking at a very tough couple of years,” he said.

“We’ve got very stretched public finances. I think we’re going to see even further reversal of tax cuts that we’ve had, and in addition probably some very tight spending rounds.”

He added that the UK could face a financial squeeze “right across the piece”.

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