U.K. Treasury Chief Jeremy Hunt Looks to Reassure Markets With New Tax Plan

It will likely make additional U-turns on measures announced by former Chancellor

Kwasi Kwarteng

last month, moves that caused government borrowing costs to move sharply higher. Mr. Kwarteng was fired on Friday after both the markets and Conservative lawmakers rejected the plan to borrow to fund the biggest tax cuts since the 1970s.

“This follows the prime minister’s statement on Friday, and further conversations between the prime minister and the chancellor over the weekend, to ensure sustainable public finances underpin economic growth,” the U.K. Treasury said.

The government has already U-turned on two tax cuts, including a planned reduction in corporate tax and the removal of a levy on top earners. Mr. Hunt this weekend said he had been given a clean slate to work from by Ms. Truss who is currently battling to save her job amid a slump in popularity.

Mr. Hunt’s predecessor announced a series of tax cuts on Sep. 23, alongside a costly package designed to protect households and businesses from surging energy costs as a result of Russia’s invasion of Ukraine.

Investors expressed concerns about the scale of borrowing required at a time of high inflation and fast-rising interest rates. Higher interest rates increase borrowing costs and put government finances on a precarious footing.

Uncertainty about the outlook for borrowing led to a sharp fall in U.K. government bond prices and the Bank of England was forced to intervene in the market to prevent what it described as a “fire sale” driven by U.K. pension funds.

That intervention ended Friday, raising questions about investor confidence in the weeks before the planned statement on medium-term borrowing plans on Oct. 31.

In a statement Monday, the BOE confirmed that its bond purchases had ended as planned and said it had helped pension funds adjust to higher interest rates.

“As previously announced, the Bank terminated these operations and ceased all bond purchases on Friday 14 October,” it said. “As intended, these operations have enabled a significant increase in the resilience of the sector.”

Investors welcomed the Treasury’s announcement, with the price of 10-year U.K. government bonds rising early Monday, pushing yields down to 4.004% from 4.388% at Friday’s close, according to Tullet Prebon.

While the announcement of new tax rises and spending cuts may ease investor concerns about the government’s borrowing needs over the coming years, one vital element of budget announcements over the past decade will be missing—an assessment by the independent Office for Budget Responsibility.

Investors who reacted badly to the initial tax cuts cited the absence of an OBR assessment of their impact on economic growth and government debt as a key shortcoming. The Treasury on Monday said the assessment wouldn’t be released until Oct. 31.

The economic crisis triggered by the planned tax cuts has undermined voter support for Ms. Truss, whose popularity rating is the lowest of any British prime minister since the early 1990s, according to polls. Conservative Party lawmakers are now wondering if the party should head to elections, which must be held within two years, with Ms. Truss at the helm.

Write to Max Colchester at max.colchester@wsj.com and Paul Hannon at paul.hannon@wsj.com