Published: 18 October 2022
By Suzanne Evans, Director, Political Insight
Chancellor Jeremy Hunt confirmed yesterday that he would stop almost all the tax measures announced in the Plan for Growth (the so-called mini-budget) on 23rd September that had not started their progress through Parliament. The government will therefore be proceeding with the abolition of the Health and Social Care levy, the reversal of the 1.25% increase in national insurance contributions, and the changes to stamp duty as previously announced, but will no longer make cuts to the dividend tax rate, nor reverse IR35 off-payroll working reform. The government will also not be introducing a VAT-free scheme for overseas visitors, nor freezing alcohol duty rates. Hunt will also keep the basic rate of tax at 20p indefinitely, until “economic circumstances allow it to be cut,” rather than reduce it to 19p in April next year. “It is not right to borrow to fund this tax cut,” he said. The Energy Price Guarantee will not change until April but beyond that, he said, he and the Prime Minister Liz Truss agreed it would not be responsible to expose public funds to energy price volatility. Previously, support was set to be in place for two years. Instead, Hunt announced a Treasury-led review of how to support energy bills beyond April next year, that would “cost considerably less than planned” and “better incentivise energy efficiency”. Having said both he and Prime Minister Liz Truss remain committed to cutting Corporation Tax, he later said there would be “more difficult decisions on both tax and spending” to reduce debt, and that “any tough decisions necessary” will be made to ensure Britain “pays its way. The cap on bankers’ bonuses still looks set to be scrapped.
The Chancellor also announced to the House of Commons that he was establishing an Economic Advisory Council to advise him on economic policy. He named four members: Rupert Harrison, Chief of Staff to the former Chancellor George Osborne and a former Chair of the Council of Economic Advisers at the Treasury who now works for investment firm Blackrock; former Bank of England policymakers Gertjan Vlieghe and Sushil Wadhwani, and JP Morgan's chief market strategist for EMEA, Karen Ward. Terms of reference later published online said the council “will act as a consultative forum for the government to be advised on UK and international economics and financial markets". The document also said the council would have no policy or decision-making powers; that members would be chosen and removed by Hunt, and that he board's membership and objectives would be subject to a review after six months.
Jeremy Hunt’s U-turn statements yesterday appeared to calm the financial markets. The pound rose by as much as 1.4% to a session high of $1.1332 (although this only takes it back to levels seen last week) and by 0.8% against the euro to a peak of 86.90p. Yields on the 30-year gilt dropped by nearly 40 basis points to 4.387%, marking one of its biggest daily drops on record. The blue chip FTSE 100 ended the day 0.9% up, while mid-cap FTSE 250 stocks - which tend to be more sensitive to UK economic events - closed 2.76% up.
Liz Truss was not in the House of Commons (HoC) yesterday to answer urgent questions from the Opposition on why she had sacked her former Chancellor Kwasi Kwarteng. Instead, the Leader of the House, Penny Mordant, took questions on her behalf. Mordant insisted throughout her grilling that Truss was unavoidably detained on a serious matter. Guardian Political Editor Pippa Crerar later claimed on Twitter that "Truss was with Sir Graham Brady during Labour's urgent question in HoC - as per No 10 sources". Sir Graham Brady is chair of the influential 1922 Committee of Conservative MPs, which is responsible for running leadership contests, however Crerar added that her sources in Downing Street told her: “it was a pre-planned meeting - rather than crisis talks." However, Brady was seen in the Chamber for the first 20 minutes of Labour’s urgent question, only leaving shortly before Truss arrived for Chancellor Jeremy Hunt’s statement to the Commons, throwing some doubt on this claim.
Late yesterday evening, Liz Truss did, however, give an interview to the BBC’s Chris Mason. She apologised several times for “going too far, too fast” in her policymaking, but insisted she remained committed to a low tax economy. She conceded that it would have been “irresponsible” not to have U-turned as she did: “I did make mistakes and I’ve been upfront and honest about that,” she said. “I was expecting it to be tough, and it has been tough,” she added. “I think people recognise that we are facing a very serious situation internationally, that there are serious economic headwinds, and they want a government and a Conservative party that deals with that.” Asked about the sacking of Kwasi Kwarteng, she said it was a “tough” and “painful” decision to make, as he was her friend, but insisted it was the “right” decision to appoint a new chancellor. “I will lead the Conservative Party into the next General election,” she insisted, saying she was not interested in the internal politics of her party, but “delivering for the people of Britain.”
The Bank of England has concluded its intervention to prevent a collapse in the pensions industry, having purchased a total of £19.3bn of UK government bonds, after the interest rate on the same reached highs not seen since the financial crash of 2008, leading to a mass sell-off. The final amount spent was far less than the limit the central bank had set itself: it could have spent a total of £65bn, £5bn a day over the 13-day scheme. Of the £19.3bn spent, £7bn went on index-linked gilts (with interest rates linked to inflation), and £12.1bn went on conventional long-dated gilts. Meanwhile, this morning’s Financial Times says the Bank is likely to continue to delay the proposed sale of £838bn in government bonds to encourage greater stability in gilt markets following the recent turmoil. The sale was due to begin on 6th October.
Sky News reported yesterday that Britain's financial regulators had identified one remaining fund at an asset manager that would have faced a series of "knockouts" and potential collapse if gilt yields had risen markedly yesterday morning. A half percentage point rise in the interest rates on government bonds would have left this fund - whose identity Sky News did not release - having to conduct a "firesale" of government bonds. However, since the problems were located specifically in a single fund, the Bank of England did not believe its collapse would have provoked a system-wide problem that would necessitate its intervention, the broadcaster said.
The Financial Conduct Authority (FCA) says it stopped 17 firms and seven individuals from getting new FCA authorisation last year as it suspected them of moving to or setting up a new firm to avoid the consequences of having provided unsuitable advice, a practice known as ‘phoenixing’. The markets watchdog also said it curbed the activities of twice as many consumer investment firms in the last financial year as in the previous year, curbs which included preventing firms from promoting and selling certain products or services such as advice on defined benefit - or final salary - pension transfers. The FCA is keen to clamp down on poor financial advice and scams, having been criticised for its failure to spot troubles ahead of the collapse of investment firm London Capital & Finance two years ago, despite tip-offs.
The head of National Grid, Britain's electricity and gas systems' operator has told households to prepare for blackouts between 4pm and 7pm on weekdays during "really, really cold" days in January and February if gas imports are reduced. Speaking at the Financial Times's Energy Transition Summit yesterday, National Grid CEO John Pettigrew said blackouts would have to be imposed during the "deepest darkest evenings" in January and February if electricity generators did not have enough gas to meet demand, especially if there is a period of cold weather. Numerous measures are planned to avoid blackouts, including placing coal-fired power stations on standby instead of retiring them as previously planned and creating a demand flexibility service, allowing consumers to be rewarded for not using power during times of peak demand, Sky News says.
The government yesterday confirmed a Sky News report that it is in talks with steel makers, including British Steel, which owned by China's Jingye Group, and India's Tata to help secure the industry's long-term future. Sky said that Business Secretary Jacob Rees-Mogg had written to Jingye Group to express a willingness to negotiate over the Chinese company's request for a bailout to avoid thousands of job losses. Jingye, which bought British Steel out of insolvency in 2020, threatened earlier this month that it may have to make thousands of employees redundant and import steel from China unless government aid was forthcoming so it could continue running its two otherwise “unviable” blast furnaces at its Scunthorpe steelworks. A government spokesperson said: "We are working across the steel sector on achieving their sustainable and competitive long-term future”. Reuters also said yesterday that British Steel has agreed to maintain current operations and job numbers while the talks were under way.
Insurers have won key parts of a complex legal battle with British pubs group Stonegate, after its 760 pubs were forced to close because of forced covid lockdowns, Reuters reports. Stonegate had argued in a High Court case against MS Amlin, Zurich Insurance and Liberty Mutual that pubs they had insured each faced many separate challenges, having to open and shut at differing times according to regional rules, which led to business dropping by up to 90% below projections. The insurers accepted Stonegate's businesses were covered by their policies, but said cover was limited to one business interruption payment of £2.5 million pounds, which it had already paid. Yesterday’s judgement found in the insurers’ favour, saying there were just two separate events which triggered business interruption payments. The judge also ruled that Stonegate could not claim against its insurance policy where losses had been covered by government furlough payments. Insurers have already paid out more than £1.5bn in compensation to thousands of small businesses that had to close or restrict trading, after the Competition and Markets Authority won a test case against insurers. However, not all policy wordings were covered by the test case and so some businesses disputed payout levels, leading to further court cases. "We welcome the judgment of the High Court, and believe this brings some genuine clarity to a very complex business interruption case," Johan Slabbert, CEO, MS Amlin Underwriting Limited, said.
According to Foxtons estate agents, tenants in London have never paid so much for a place to live, with the average weekly rent coming in at £553 per week in September, breaking June 2022’s record of £549 per week. Foxtons said that landlords are “taking advantage” of a lack of supply to push prices, and that 29 renters were on average competing for every new property introduced to the market last month. There were only 23,000 listings across London in September, Foxtons said, the lowest monthly volume this year, and 38% lower than in the same period last year. “The demand was triggered by huge numbers of new renters looking for property: students physically returned to London post Covid, corporate relocations resumed at full pace and rising interest rates persuaded some buyers to continue renting in the immediate future,” Gareth Atkins, managing of lettings at Foxtons, said. “With over three quarters of our tenants choosing to renew rather than look for a new property, I don’t expect the pressure of low stock to ease anytime soon,” he added.
BP said yesterday that it has agreed to buy US renewable natural gas (RNG) producer Archaea Energy in a $4.1bn deal. BP said the acquisition would accelerate its "strategic bioenergy transition growth engine". Archaea operates 50 RNG and landfill gas-to-energy facilities across the US.
Hargreaves Lansdown (HL) CEO Chris Hill will retire after six years in the role. The investment platform said the board is undertaking a "thorough and extensive" search for his successor and Hill will remain in the role up to November 2023 to allow time for a handover. The news comes amid reports the company has been hit by a lawsuit over the failure of Neil Woodford's equity income fund. According to Reuters, claims management firm RGL said it had filed the claim in London's High Court on Friday on behalf of an initial 3,200 investors against HL, which promoted the former flagship LF Woodford Equity Income Fund. RGL is also suing Link Fund Solutions, the fund's authorised corporate director, and said its claim could top £100 million.
China has delayed the release of its latest economic growth figures, which were due to be published as President Xi Jinping is expected to be confirmed for a historic third term at this week's Chinese Communist Party congress in Beijing. China’s National Bureau of Statistics (NBS) did not give a reason for the delay, but commentators are seeing it as a sign of further weakness in the world's second largest economy. A new date for the release of the figures has not yet been scheduled.
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