UK Chancellor of the Exchequer Jeremy Hunt has reversed most of an economic package announced by the government just weeks ago, including a planned cut to income tax.

In a bid to soothe turbulent financial markets, the new chancellor said he was scrapping "almost all" the tax cuts announced last month and signalled public spending cuts are on the way.

Mr Hunt also scaled back a cap on energy prices designed to help households pay their bills.

It will now be reviewed in April rather than lasting two years.

"It is a deeply held Conservative value — a value that I share — that people should keep more of the money that they earn,'' Mr Hunt said.

Mr Hunt was appointed on Friday after Prime Minister Liz Truss fired Kwasi Kwarteng, who spent less than six weeks in the role.

Ms Truss and Mr Kwarteng jointly came up with a September 23 announcement of 45 billion pounds ($81 billion) in unfunded tax cuts that spooked financial markets, sent the pound to record lows and forced the Bank of England to take emergency action.

Ms Truss apologised for "mistakes" in her program that caused investor confidence to evaporate and her poll ratings to plunge before nearly all of it was finally shredded on Monday, but said she would not step down.

"I do want to accept responsibility and say sorry for the mistakes that have been made," she told the BBC.

"I wanted to act but to help people with their energy bills to deal with the issue of high taxes, but we went too far and too fast."

Rachel Reeves, the finance spokesperson for the opposition Labour Party, said the Conservative government was no longer capable of providing stability.

"The Conservatives have lost all credibility," she said.

Monday's hastily scheduled announcement came two weeks before Mr Hunt is due to set out a medium-term fiscal plan.

The government had already ditched parts of its tax-cutting plan and announced it would make a medium-term fiscal statement on October 31.

But the market remained jittery, and Mr Hunt decided he had to make a statement to calm the waters even sooner.

Ms Truss declined to attend the House of Commons to answer a question on the economy from the leader of the opposition, sending House of Commons leader Penny Mordaunt in her place.

Ms Mordaunt denied a politician's suggestion that Ms Truss was "cowering under her desk" to avoid scrutiny.

Ms Truss's spokesman said the prime minister and Mr Hunt had jointly agreed on the economic changes.

But Mr Hunt told Conservative politicians that Ms Truss "backed him to the hilt in making difficult decisions" — suggesting he has a free hand to make policy.

With Ms Truss sitting silently beside him, Mr Hunt told politicians that he was cancelling Ms Truss' plan to reduce the basic rate of income tax by 1 percentage point and most of her other libertarian economic policies.

In a message aimed squarely at reassuring the financial markets, he said Britain was "a country that funds our promises and pays our debts".

"And when that is questioned, as it has been, this government will take the difficult decisions necessary to ensure there is trust and confidence in our national finances," Mr Hunt said.

Mr Hunt spent the weekend in crisis talks with Ms Truss, and also met with Bank of England governor Andrew Bailey and the head of the government's Debt Management Office.

Restoring government credibility

Mr Hunt's moves are aimed at restoring the government's credibility for sound fiscal policy after Ms Truss and Mr Kwarteng rushed out their plan for tax cuts without detailing how they would pay for them.

The unfunded tax cuts fuelled investor concern about unsustainable levels of government borrowing, which pushed up government borrowing costs, raised home mortgage costs and sent the pound plummeting to an all-time low against the dollar.

Labour Shadow Chief Secretary to the Treasury Pat McFadden said the move was a "complete humiliation" for Ms Truss.

"The damage has now been done. She's in an impossible position where the survival of the government is dependent on publicly torching everything that she believes," he said.

"It's a humiliation for the government and the fear must be that the damage has been done and will leave the country paying a continued Tory instability premium and people paying a Tory premium on their mortgages for some time to come."

The Bank of England was forced to intervene to protect pension funds squeezed by volatility in the bond market.

Mr Hunt was under pressure to act before financial markets opened on Monday because the central bank's support for the bond market ended on Friday.

The early response from investors was positive.

The UK currency is now trading for roughly the same price it was on September 22, the day before Mr Kwarteng announced the tax cuts.

But analysts warned the positive market news might only be a temporary reprieve.

"Trussenomics may have been ripped up and fed to the shredder but the author of the big gamble remains in power, and has the final say on the direction of travel,'' said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

"Investors are craving more stability but, given the flip-flopping we've had so far in her super-short tenure, economic policy uncertainty remains and that's likely to be the key driver in the bond markets and on foreign exchange desks," she said.

The financial fiasco has turned Ms Truss into a lame-duck prime minister, and Conservative MPs are agonising about whether to try to oust her.

She took office just six weeks ago after winning a party election to replace Prime Minister Boris Johnson.

He was forced out in July after serial ethics scandals ensnared his administration.

AP