Prime Minister reverses 45 per cent of her tax cuts but leaves the new Chancellor two weeks to fill Britain’s £20-40 billion economic credibility gap

Today’s dramatic mini-Budget reversal, in which the Prime Minister sacked her Chancellor and re-instated the previous Chancellor’s plans to increase corporation tax from 19 to 25 per cent, means that 45 per cent of the tax cuts announced on 27 September have now been abandoned, the Resolution Foundation said today (Friday).

However, the combination of £25bn of remaining tax cuts and a deteriorating economic outlook (particularly rising debt interest costs) means that Jeremy Hunt, the new Chancellor, may still face some tough tax and spending decisions if he is to show the government is credibly committed to getting debt falling when the Medium-Term Fiscal Plan is announced in just two weeks’ time. The Prime Minister gave a strong hint that fresh spending cuts are coming when she said that ‘public spending will grow less rapidly less previously planned’.

The Foundation calculates that around £20-40 billion of further fiscal restraint may well be needed in order for debt to be falling as a share of GDP by 2026-27.

Torsten Bell, Chief Executive of the Resolution Foundation, said:

“The last two weeks have seen the announcement and unravelling of the worst unforced error in British economic policy making for generations. The Prime Minister today got rid of her Chancellor and has junked almost half of her tax cuts.

“However, the need to fund the remaining tax cuts and darker economic outlook – including higher debt interest costs – mean that despite today’s U-turns, Jeremy Hunt has just two weeks to decide how to fill a black hole of several tens of billions of pounds in the public finances.

“And while much of the focus is on the political fall-out, the public will be far more concerned with the lasting impact on their family finances, not least their mortgages. This whole debacle has been a painful, but it appears necessary, reminder that economic policy making is not a game.”