UK tax cut plan is dumped in policy shake-up

New priorities hailed as 'a move in the right direction' to improve govt balance

Britain's Chancellor of the Exchequer Jeremy Hunt has reversed most of the tax cuts in the minibudget announced by the government last month in a bid to rebuild investor confidence.

On Monday, Hunt, who replaced Kwasi Kwarteng on Friday after the former chancellor's mini-budget was poorly received by financial markets and caused a surge in government borrowing costs, said a planned 1 percentage point cut in income tax due in April will now not happen and that the rate would remain the same "indefinitely until economic circumstances allow for it to be cut".

Hunt said he was making the changes to "reduce unhelpful speculation" about what was happening ahead of the government's medium-term fiscal plan to be revealed at the end of the month, reported the BBC.

In another major U-turn, the planned cap on the annual cost of energy, designed to help households pay their bills, will be scaled back and will be reviewed in April rather than lasting two years as previously stated.

Hunt said: "The objective is to design a new approach that will cost the taxpayer significantly less than planned, whilst ensuring enough support for those in need.

"Any support for businesses will be targeted to those most affected, and the new approach will better incentivize energy efficiency.

"The most important objective for our country right now is stability."

He also signaled that public spending cuts were on the way.

Speaking in Parliament later, Hunt added: "I remain extremely confident about the UK's long-term economic prospects as we deliver our mission to go for growth. But growth requires confidence and stability, and the United Kingdom will always pay its way."

Economists had estimated the government was facing a 60 billion pound ($67.8 billion) hole in public finances with the original minibudget announcements, reported Sky News. The Reuters news agency cited economists as saying the measures would not plug the gap in the public finances or undo the damage done by the government's radical policy, but were a move in the right direction.

The Treasury said the new tax measures would bring in 32 billion pounds.

The announcement triggered an immediate drop in government borrowing costs, with the rate on 10-year bonds or gilts falling from 4.5 percent last week to just under 4 percent on Monday.

However, banks have continued to increase mortgage rates despite the policy reversal, The Times newspaper reported. Simon Gammon, managing partner at the mortgage broker Knight Frank Finance, told the paper he did not expect mortgage rates to fall in the short term, but that "stability in the swaps market should slow the pace of rising mortgage rates relative to some of the worst-case scenarios that looked possible in the days following the mini-budget".