The basic rate of income tax is set to remain at 20 percent until economic conditions allow for it to be cut, Chancellor of the Exchequer Jeremy Hunt said in a statement.
The 1.25-percentage-point increase in dividends tax will remain and the VAT-free (value-added tax) shopping scheme for foreign visitors to the country will no longer be taken forward.
Added to the earlier package of government decisions worth 21 billion British pounds (23.9 billion U.S. dollars) aimed at keeping the increase in corporation tax and the highest 45-percent rate of income tax, these changes, taken together, are estimated to be worth around 32 billion pounds a year, according to the statement.
Hunt also said the support scheme for UK households and businesses facing rising energy costs will only run until next April, and a Treasury-led review will be conducted after that to consider what support will be needed then.
Also on Monday, the UK Treasury said the chancellor will deliver the full medium-term fiscal plan by the end of October, and the chancellor has briefed the Bank of England and the Debt Management Office on these plans.
Addressing the House of Commons on Monday, Hunt said that "the central responsibility of any government is to do what is necessary for economic stability."
Whether reductions in spending or increases in tax, the government will prioritize the needs of the most vulnerable, he added.
On keeping the basic rate of income tax at 20 percent, the chancellor said that "at a time when markets are asking serious questions about our commitment to sound public finances, we cannot afford a permanent, discretionary increase in borrowing worth 6 billion pounds a year."
He also announced the formation of a new Economic Advisory Council to advise the government on economic policy. Its members will include a former chief of staff to the chancellor of the exchequer and experts from financial companies like J. P. Morgan.
"The British people rightly want stability, which is why we are addressing the serious challenges we face in worsening economic conditions," UK Prime Minister Liz Truss tweeted on Monday.
The British pound was on the rise on Monday and traded above 1.14 U.S. dollars in the afternoon. UK borrowing costs have tumbled, with the yield on 30-year UK gilts down 40 basis points to 4.36 percent, according to Bloomberg statistics.
The government is telling the market that this is not just a U-turn on the tax-cutting package but a complete change in the way it is running fiscal policy, Paul Dales, an economist at Capital Economics consultancy, said.
Concerns remain though. With the energy bills support scheme to be shortened, "this does mean that the government may reduce how much it has to pay out to households and businesses, but it also means that households and businesses will have to pick up more of the tab," Dales said.
"That increases economic uncertainty and may mean that inflation ends up being higher for longer next year and that the recession is deeper as a result," he added.
On Sept. 23, the government unveiled a 45-billion-pound tax cut package, the largest since 1972, to boost economic growth, but it threw financial markets into turmoil as the British pound collapsed to record lows and government borrowing costs rose sharply.
Investors are concerned that the tax-cutting measures will ramp up public borrowing, bring serious fiscal uncertainty and push up already high inflation.
To calm markets, the Bank of England announced temporary purchases of long-dated UK government bonds at the end of September, and later stepped up the measures, increasing the maximum size of the auctions and expanding bond buying to include index-linked gilts.
The central bank on Monday confirmed that it terminated these operations and ceased all bond purchases on Friday, noting that "these operations have enabled a significant increase in the resilience of the sector." (1 British pound = 1.14 U.S. dollars)
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