After severe criticism of its economic plans, the British government made a major about-face. Finance Minister Kwasi Kwarteng announced Monday morning in Birmingham that the maximum 45% tax rate for the richest would not be abolished after all. The project distracts from real plans to overcome current challenges. Therefore, the maximum rate will not be abolished. “We understand, we listen,” wrote the conservative politician in a statement posted on Twitter.
Earlier, prominent members of the Conservative Party such as former ministers Michael Gove and Grant Shapps had sharply criticized the tax breaks and the huge national debt and indicated that they intended to vote against them in parliament. The government feared a rebellion within its own party. Just over a week ago, Kwarteng announced tax cuts, which are primarily aimed at benefiting society’s wealthiest. Prime Minister Liz Truss’s new government wanted to boost economic growth.
After the announcement of the debt-funded plans, the pound rate plummeted. The British central bank felt compelled to step in and buy government bonds with long maturities – no cap. Kwarteng intends to stick to other equally controversial parts of the economic plan – including tax cuts for other income groups, despite extremely high inflation in Britain.
In polls, cutting the maximum tax rate was the most unpopular measure in the government’s package. Along with the planned removal of a cap on bank employee bonuses, many Brits were left with the impression that Conservatives only care about the well-being of the rich. The Conservatives’ poll numbers were 33 percentage points behind those of the Social Democratic Labor Party after the plans were announced last week.
According to Bloomberg news agency, the reversal on such a central political issue is also perceived as embarrassing in Truss’s own Conservative party – and as a bad sign for Liz Truss early on in her term.