LONDON — The UK government said “we understand” as it abandoned plans to abolish the top-rate income tax for the highest earners, a key element of its economic plans that spooked markets and sent the pound sterling into an all-out crash. Time low against the US Dollar.
In a major U-turn for the UK government, Prime Minister Liz Truss said on Monday that the proposed abolition of the 45 per cent rate for those earning more than £150,000 ($168,000) has become a “distraction”.
We understood and we listened.
The abolition of the 45 per cent rate had become a distraction from our mission to get Britain moving.
Our focus now is on building a high-growth economy that funds world-class public services, raises wages, and creates opportunities across the country. https://t.co/ee4ZFc7Aes
— Liz Truss (@trussliz) October 3, 2022
Kwasi Kwarteng, the new Chancellor of the Exchequer, or Finance Minister, made a similar statement, saying, “We understand and we’ve been listening.”
The Truss government unveiled its highly controversial economic plan in a “mini-budget” on September 23. It would see Britain borrowing billions to pay for tax cuts and spending to protect consumers from rising energy bills.
The British pound falls to an all-time low against the dollar after taxes were cut
Response to the plans was quick. Investors sold sterling and government bonds, fearing the measures would exacerbate inflation. In a highly unusual move, the Bank of England intervened last week to halt a financial markets revolt.
The Conservative Party’s popularity has also fallen. In a stunning YouGov poll, the Conservatives trailed the opposition Labor Party by 33 percentage points, a gap not seen since the 1990s.
The reversal is a major blow to the authority of Truss, who has been in office for just under a month. As late as Sunday morning, she said she was committed to politics and would stick to the tax cuts. Kwarteng was expected to defend the measures in his speech at the Conservative Party’s annual conference later on Monday.
But the government has faced a growing backlash from within its own ranks, as several Conservative lawmakers publicly expressed opposition to plans to cut taxes for the highest paid while millions are squeezed financially by the cost-of-living crisis.
The plans have yet to pass Parliament, and some commentators have questioned whether they would have made it.
“I cannot support the 45p tax exemption when nurses are struggling to pay their bills,” tweeted Conservative lawmaker Maria Caulfield, who served as Minister of State for Health in the previous government.
Michael Gove, a senior Conservative, said unfunded tax cuts are “not conservative”.
Asked by the BBC if he was throwing out the plans because they wouldn’t get support in Parliament, Kwarteng said: “It’s not about getting it through, it’s about actually getting people behind the measure. It’s not about parliamentary games or votes in the House of Commons.
“It’s about listening to the people, listening to the voters who have expressed very strong views on this and overall I felt it was right not to go ahead,” he said.