Liz Truss was left clinging on to her job today after a humiliating reversal of her tax cuts by new Chancellor Jeremy Hunt.
Markets responded positively as Mr Hunt confirmed that plans to cut 1p off income tax next year was being scrapped and that the energy bill freeze will only last until the end of March.
He said the scrapping of the rise on national insurance and the increases in stamp duty will go ahead as planned, as will an increase in tax on dividends.
But businesses were dismayed that the reforms to the controversial IR35 off-payroll system will remain in force, as will the scrapping of VAT-free shopping for tourists. Alcohol duties will be allowed to rise rather than being frozen.
Politically, it has left Ms Truss a lame duck Prime Minister in name only as she has been forced to abandon the economic agenda on which she campaigned for the Tory leadership.
The Treasury will review what happens to its energy bill freeze beyond April, with Mr Hunt indicating it will be more targeted to more vulnerable households from this point.
He also warned of further spending cuts to come to try and get “debt falling in the short to medium-term” and to make sure “the United Kingdom will always pay its way”.
It comes as several Tory backroom plots are underway to dump the Prime Minister, after just 40 days in office.
The chancellor made the emergency statement this morning to further calm financial markets ahead of delivering more details to the House of Commons this afternoon.
Mr Hunt said that “no government can control markets, but every government can give certainty about the sustainability of public finances”.
“We will reverse almost all the tax measures announced in the Growth plan three weeks ago that have not started parliamentary legislation,” he said.
The yield on the 30-year UK gilt fell around 40 basis points to 4.38%, thereby reducing the cost of government borrowing. The pound spiked at over $1.13.
Rachel Reeves, Labour’s Shadow Chancellor of the Exchequer, responding to the Chancellor’s statement, said: “The damage has been done. This is a Tory crisis made in Downing Street, paid for by working people, paying higher mortgage and borrowing costs.
“The Conservatives have lost all credibility. The Chancellor said that growth requires ‘confidence and stability’ yet it’s clear that the Tories can’t provide this. There will continue to be a huge cost to families because of the actions of this Tory government.
“We are still flying blind with no OBR forecasts and no clarity of the impact of their mistakes.
“The humiliating climb-down on their energy plan begs the question yet again – why won’t they bring in a windfall tax on energy producers to help foot the bill?
“Only Labour offers the leadership and ideas Britain needs to fix the economy and get out of this mess.”