Early on Monday 17 October, the Treasury issued a press release that nobody was expecting: the (latest) Chancellor, Jeremy Hunt, was effectively going to reveal most of the elements of the Medium-Term Fiscal Plan later in the day, rather than waiting two weeks for Halloween. Such a rushed release pointed to government concern that the sacking of Kwasi Kwarteng and dropping of corporation tax cuts would not be enough to soothe the markets when they opened on Monday morning. Looming in the background was last Friday’s removal of gilts market support from the Bank of England.
The Chancellor’s morning media statement, to be followed by an announcement in the House of Commons in the afternoon, reversed much of what was left of Kwasi Kwarteng’s ‘fiscal event’. The headlines of his short statement were:
Add today’s measures to the reversals on corporation tax and additional rate tax and £32bn of Kwasi Kwarteng’s £45bn extra borrowing in 2026/27 has now been removed (see table below). However, that is not the full story, given that the Treasury’s September numbers took no account of what has happened to the UK economy since the Office for Budget Responsibility (OBR) last published an Economic and Fiscal Outlook (EFO) in March.
The recent number crunching by the Institute for Fiscal Studies put the black hole in 2026/27 at £62bn.With today’s measures that comes down to about £32bn. That may be optimistic – weekend rumours pointed to the OBR’s starting figure being £10bn higher than that of the IFS projection.
The Chancellor has acted swiftly to calm markets, but how long the stability lasts remains to be seen –a fortnight remains until the OBR’s judgement arrives. There is also a question mark over whether the government can get all its measures through – the EPG reworking could be particularly difficult. And that is before the issue of benefit increases is considered.
The changes are unlikely to have any immediate impact to take home pay over the next few months because changes were not already in force. Nor should they impact heavily on financial plans in place. However, as with any changes it is good to review and understand any impact on financial plans both now and towards the end of the tax year.
Our planning software had included the additional 1.25% national insurance and dividend tax since it was announced and will now reverse the income tax change.