Jeremy Hunt reverses around 60 per cent of mini-Budget tax cuts and scraps the 1p basic rate Income Tax cut

On 17 October 2022, his fourth day as Chancellor, Jeremy Hunt announced a reversal of around 60 per cent of the tax measures set out in Kwasi Kwarteng's mini-Budget of 23 September, according to the Resolution Foundation¹. The reversals total £32.3 billion, the foundation said, which on its own would be the largest tax-raising fiscal announcement since 1993, narrowly beating Rishi Sunak's Spring Budget 2021, which contained around £29 billion a year of tax increases¹.

The measures the government said it would no longer proceed with include repealing reforms to IR35 off-payroll working rules, which the foundation says would have raised around £2 billion a year; a VAT-free shopping scheme for tourists (£2 billion); a 1.25 percentage point cut to dividend tax from April 2023 (around £1 billion); and a freeze on alcohol duties from 1 February 2023 (£600 million)¹. These came on top of the reversal announced on the Friday before of the £19 billion cut to Corporation Tax¹. The Chancellor also scrapped Rishi Sunak's 1p cut to the basic rate of Income Tax, saving almost £6 billion a year¹.

The foundation said the U-turns since 23 September had reduced the size of the personal tax cut next year for a typical household from £500 to £290, driven by the scrapping of the rise in National Insurance¹. For the richest 10 per cent of households, it said tax cuts had been reduced from £5,380 to £1,650¹. It added that the typical household in 2025-26 would see incomes fall by £1,000 as a result of personal tax and benefit changes announced during this parliament, compared with £780 at the time of the mini-Budget, while the richest 5 per cent would see an average income loss of £4,330, against gains of £2,520 after the mini-Budget¹.

The foundation said the majority of the tax rise comes from the freezing of the Income Tax Personal Allowance for four years, first announced in March 2021, which it said would have cost the typical household £320 a year by 2025-26 but now costs over four times that, at £1,420, because of higher forecast inflation¹. It projected that taxes as a share of GDP would rise to around 36 per cent by the end of the parliament, up from 33 per cent at the start, which it said would be the UK's highest tax take since 1950-51¹.

Why it matters for households

The reversals mean the tax reductions households were told to expect in the mini-Budget are smaller than first announced. For a typical household, the personal tax cut next year falls from £500 to £290, and for the richest 10 per cent from £5,380 to £1,650¹. Over the parliament as a whole, the foundation estimates the typical household will be £1,000 worse off by 2025-26 from personal tax and benefit changes, compared with £780 at the time of the mini-Budget¹. The largest single factor is the four-year freeze to the Income Tax Personal Allowance, which the foundation says now costs the typical household £1,420 a year by 2025-26 rather than the £320 estimated when it was announced in March 2021¹. Details of how the freeze works are set out in our guide to Income tax: bands, rates and how your bill is worked out.

The Energy Price Guarantee will now end next April, 18 months earlier than originally planned¹. The foundation says this could save the Treasury up to £40 billion next year, but would allow typical annual bills to rise to £4,000 next April, on the basis of current wholesale gas prices and the Ofgem price cap returning to effect¹. It said such bills would be entirely unaffordable for millions of households, especially those on low incomes and with high energy use, and that pressure is now on a Treasury review to design a more targeted and cheaper successor¹.

What happens next

The government's medium-term fiscal plans are to be laid out on 31 October¹. The foundation said the Chancellor remains on track to announce public spending cuts in the order of tens of billions of pounds, and that cuts of that scale are likely to be needed if the government is to meet its stated aim of having debt falling as a share of GDP in the medium term¹. It also noted that yields on benchmark 10-year gilts fell by around 0.5 percentage points on the morning of the announcement, which it said would reduce borrowing costs by a further £8.1 billion on the OBR's ready reckoners if sustained¹.