New U.K. Chancellor of the Exchequer Jeremy Hunt is to delay a cut in personal income tax, the flagship announcement in the September mini-budget which roiled financial markets. The move is meant to help plug a black hole in the public finances that is now seen to be as much as £72 billion.
In the latest in a series of government U-turns, the new chancellor is expected to announce that plans to reduce the basic rate of income tax next April will be pushed back by a year, the London Times reported Saturday.
The cut to 19 per cent will now take effect at the time previously proposed by Rishi Sunak, the former chancellor, who was Prime Minister Liz Truss’s leadership rival in the recent election for leader of the Conservative Party. The cut will save 31 million taxpayers up to £360 a year.
The delay is expected to save the Treasury £5 billion a year as Hunt tried to deal with an economic outlook that government sources have revealed is “far worse” than had been predicted.
A source familiar with the discussions between the Treasury and Office for Budget Responsibility (OBR) confirmed that the watchdog had warned in its draft forecast that by 2027-28 there would be a black hole in the public finances of up to £72 billion.
Even after the U-turns on the additional rate of income tax and corporation tax, which will raise £20 billion, the Treasury still faces a shortfall of up to £52 billion.
Hunt, who replaced Kwasi Kwarteng as chancellor on Friday, will meet Richard Hughes, chairman of the OBR, on Monday, as he begins ripping up Truss’s economic policy. He is understood to be reviewing every aspect of Kwarteng’s fiscal statement before he delivers his first “proper budget” on October 31.