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U.K. Markets Rise as New Chancellor Rushes Forward New Tax Plans U.K. Markets Rise as New Chancellor Axes Truss’s Tax and Spending Plans
(about 3 hours later)
Britain’s pound and government bonds rose on Monday morning after the nation’s new finance minister made a last-minute effort to bring calm to markets before bonds started trading by announcing he would rush forward tax and spending plans. Britain’s pound and government bonds rose on Monday morning as the nation’s new finance minister said he was reversing almost all of the tax and spending plans of Prime Minister Liz Truss that were announced a few weeks ago and which sent markets into turmoil.
Two surprise statements issued early on Monday morning showed the extent of the nervousness among British officials about whether markets were about to begin another week of turmoil: The Treasury said the chancellor of the Exchequer, Jeremy Hunt, would bring forward by two weeks some measures to “support fiscal sustainability,” and the Bank of England issued a statement reiterating that it had ended its bond-buying intervention in the market that helped pension funds, but that other measures were still in place to support liquidity. Jeremy Hunt, the chancellor of the Exchequer, said he was canceling most of the tax cuts announced on Sept. 23 and he also dismantled part of Ms. Truss’s first landmark policy — a cap on household energy bills that would last through to 2024. Mr. Hunt said he would only guarantee that bills would be frozen until April.
Bond prices climbed, pushing the yield on 10-year bonds down to 4.05 percent, from nearly 4.4 percent on Friday. The pound rose 0.9 percent against the dollar, to $1.12. The decisions were a huge capitulation to pressure in financial markets, where the British pound fell to a record low against the dollar and government bond rates soared after Ms. Truss and her previous chancellor, Kwasi Kwarteng, pledged widespread tax cuts, including for the highest earners, to be funded by borrowing. Investors rebuffed the plans, anticipating they would worsen Britain’s inflationary problem and put the nation’s debt on an unsustainable path.
Monday is set to be a day of judgment for Britain in the financial markets. It’s the first trading session since the central bank ended a program that spent more than £19 billion buying bonds to end dysfunction in the market over the past two and a half weeks. It is an opportunity for investors to reappraise the plans for Britain’s public finances, after the previous chancellor, Kwasi Kwarteng, was sacked on Friday and more of the government’s recently announced tax plans were undone. “We will reverse almost all the tax measures announced in the growth plan three weeks ago that have not started parliamentary legislation,” Mr. Hunt said in a televised statement on Monday morning.
Over the weekend, Mr. Hunt, who is the fourth chancellor in as many months, signaled he would be willing to drop much of Prime Minister Liz Truss’s previous tax-cutting plan, which has caused weeks of market turbulence. Mr. Hunt said he was not “taking anything off the table.” Bond prices climbed on Monday, pushing the yield on 10-year bonds down to 3.98 percent, from nearly 4.3 percent on Friday. The pound rose nearly 1 percent against the dollar, to nearly $1.13.
“We are going to have to take some very difficult decisions both on spending and on tax,” Mr. Hunt said in a BBC interview, which was recorded on Saturday and aired on Sunday morning. Mr. Hunt will give a statement in the House of Commons this afternoon but said he wanted to give a summary of the announcements early because they were “market sensitive.”
Mr. Hunt will deliver a statement on Monday, and then speak in the House of Commons in the afternoon. A full “medium-term fiscal plan,” which will include how the government plans to reduce Britain’s debt burden and the “difficult” spending decisions that will be made, will still be delivered on Oct. 31, alongside an independent assessment on economic and fiscal impact of the policies by the Office for Budget Responsibility, a government watchdog. Mr. Hunt also said he would indefinitely postpone a plan to cut the lowest income tax rate in Britain.
“At a time when markets are rightly demanding commitments to sustainable public finances, it is not right to borrow to fund this tax cut,” he said.
Mr. Hunt made a last-minute effort to calm markets even before bonds started trading on Monday by announcing he would rush forward tax and spending plans.
Two surprise statements issued early on Monday morning showed the extent of the nervousness among British officials about whether markets were about to begin another week of turmoil: The Treasury said Mr. Hunt, would bring forward by two weeks some measures to “support fiscal sustainability,” and the Bank of England issued a statement reiterating that it had ended its bond-buying intervention in the market that helped pension funds, but that other measures were still in place to support liquidity.
Monday was set to be a day of judgment for Britain in the financial markets. It marked the first trading session since the central bank ended a program that spent more than £19 billion buying bonds to end dysfunction in the market over the past two and a half weeks. It also was an opportunity for investors to reappraise the plans for Britain’s public finances, after the previous chancellor, Mr. Kwarteng, was sacked on Friday and some of the government’s recently announced tax plans were undone.
A full “medium-term fiscal plan,” which will include how the government plans to reduce Britain’s debt burden and the “difficult” spending decisions that will be made, will still be delivered on Oct. 31, alongside an independent assessment on the economic and fiscal impact of the policies by the Office for Budget Responsibility, a government watchdog.