UK Prime Minister Liz Truss was unable to resist pressure from her Conservative Party colleagues, who saw all election expectations dashed after the announcement of an unpopular tax cut. Economy Minister Kwasi Kwarteng was the one to endure the humiliation this Monday, announcing that he is reversing the most hated measure of all the measures he announced just a week ago: the abolition of the 45% cap on income tax for the highest earners (taxpayers earning more than €170,000 per year).
“It has become clear that removing the 45 percent rate has become a distraction, disrupting our core mission of addressing the challenges facing the country,” Kwarteng wrote in a statement posted on his Twitter account earlier this morning. account was published. “It is for this reason that I announce that we will no longer continue this oppression. We understood. We listened,” he said.
The fiscal plans announced by the minister on September 23 – the largest tax cut of almost 50 billion euros in the last half century – sent sterling and government bonds into free fall. Investors questioned the sustainability of UK debt, which, like the rest of Europe, is experiencing extremely high inflation (9.9%) and accelerating interest rate rises. Only emergency intervention by the Bank of England, which started on Wednesday to buy up long-dated bonds “to whatever extent necessary”, calmed investors’ concerns.
But the panic wasn’t just financial. He was also a politician. The latest YouGov poll, published by The Times newspaper, gave the Labor opposition a 33 percentage point lead over the Conservatives in a hypothetical general election. Not since the heyday of Tony Blair has the British left held such a strong position. The unpopular decision to lower taxes on the wealthy amid a severe cost of living crisis affecting most Britons had shattered any vestige of popularity in the Conservative Party, already badly damaged by the adventures of Boris Johnson .
Relevant figures from the formation, which is celebrating its annual convention in the city of Birmingham this week, had asked for a correction from Truss. Part of the package of measures, which has to be approved by Parliament, risked being rejected by a dissenting vote by the rebel MPs. According to British parliamentary practice, losing a budget vote is almost tantamount to a vote of no confidence. Up to 14 Tory MPs had already suggested the measure would be rejected if it reached the House of Commons. Michael Gove, one of the most media-savvy and astute Conservative politicians, told the BBC on Sunday that he would be among those who would vote against.
Truss herself also admitted on the same day that she was wrong in announcing her financial plans (without the support of an independent economic report and without finally specifying some of the measures). The Prime Minister also hinted on the BBC that the idea of abolishing the 45% ceiling was not hers but that of her Minister Kwarteng. And it was he, after all, who had to show his face first to try to save face from his boss. “There is humility and regret in this withdrawal and I fully accept it,” the minister said on the BBC’s Today programme.
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However, conservative MPs made it clear that Kwarteng would not lift a finger of his own accord. Minutes after her announcement of her withdrawal, Truss herself reiterated the minister’s correction on her Twitter account and made it her own, also writing the escape formula: “We understand. We listened.”
The markets also seem to have heard the background tone of a correction for the time being. The pound regained positions against the dollar on Monday after a dizzying previous week. But the Truss government is sticking to many of its other tax plans, some as unpopular as the oppressed 45%, such as the idea of raising the existing cap on variable incentives for top executives in the City, financial heart of London break up. And direct grants to households and businesses to pay gas and electricity bills continue, totaling more than €150,000 million. Truss has begun to mend the political hole created by his government’s initial actions, but he has yet to convince markets that he will also patch the economic hole. On October 14th, the Bank of England will end its intervention to buy government bonds. Then the credibility of the new executive will be put to the test.
The rollercoaster ride of Truss’s first few weeks at Downing Street was a humiliating bath for a politician who displayed the doctrinaire fanaticism of the convert. To the last minute, the Prime Minister has insisted that the UK needs shock therapy to emerge from the lethargy it has sunk into for a decade and that it will not back down from its plans. Truss and Kwarteng revived the outdated doctrine of the Reagan and Thatcher eras that lower taxes, less public spending, and less government intervention in the economy are the recipes for generating growth and spreading the crumbs throughout society. The idea of returning to an era of austerity and approving measures as obscene as the proposals has provoked opposition from the conservatives themselves. Truss experienced first-hand, less than a month in government, what American Democrat Mario Cuomo said at the time: Campaign in verse, govern in prose.
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