Posted on 10/3/2022 8:54 am Updated on 10/3/2022 6:03 pm
The “Iron Lady” finally folded. After ten days of controversy, its finance minister, Kwasi Kwarteng, has announced that it is withdrawing part of its tax plan, sparking panic in the markets. Specifically, the government has abandoned the abolition of the 45 percent tax bracket for incomes over 150,000 euros. A particularly controversial measure in times of the purchasing power crisis.
“It is clear that the elimination of the 45% tax rate has overshadowed our mission to address the difficulties in our country. Therefore I announce that we will not prosecute them,” Kwasi Kwarteng tweeted.
Asked about the BBC, Kwasi Kwarteng struggled to explain why he and Liz Truss maintained their positions in the face of criticism for ten days and eventually resigned. “We’re talking to people across the country, we’ve seen the reactions and we understand,” he said.
His speech at the convention that afternoon did not spark the enthusiasm usually associated with this annual Conservative gathering. Greeted with polite applause from activists, the minister reiterated that he had “a plan” to revive growth, sparking some laughter from the gathering by acknowledging that the plan had “caused some turbulence”.
threat of rejection
This reversal seems all the more embarrassing given that Liz Truss, in her interview with the BBC at the opening of the Congress the day before, once again ruled out changing her project. No doubt she had no choice, even if this change of direction seriously undermines her credibility. The Birmingham convention was an opportunity for some heavyweights to come out of the woodwork to criticize their actions.
Michael Gove, a former member of Johnson’s cabinet, said removing the top 45% tax bracket amid the spending power crisis reflected “poor values” and he would vote against it.
Ex-Transport Secretary Grant Shapps has warned that Liz Truss could face a negative vote in the House of Commons. Speaking at a round table, former Secretary of State for Financial Services John Glen hollowly criticized the government’s plan: “We must recognize that the present time promises to be very difficult for the poorest. No new vulnerabilities should be created. »
Return to calm on the markets?
The income tax cut for the top tier, which would have been reduced from 45% to 40%, represents just £2bn of the 45bn tax cuts planned for 2026, including the cancellation of a social security contribution hike and what was planned for corporation tax in 2023.
His withdrawal carries strong political symbolism, as the government has been accused of favoring the richest at a time of inflation that will hit the humblest first.
In the absence of forecasts from the OBR, the office responsible for budget forecasts, the plan as a whole, including a cap on energy prices estimated by economists at between £100 billion and £200 billion, has not been scrambled. Hence the markets’ concern about their financing.
This turnaround was greeted with relief by the markets, as evidenced by sterling’s modest recovery on Monday morning. If he can give Liz Truss and Kwasi Kwarteng some political respite in the middle of the Conservative Party Conference, then the question remains as to the credibility of the tandem at the helm of UK finance, especially as Liz Truss had made her mind up in the face of difficult decisions on his trademark. Asked on the BBC about his possible resignation, Kwasi Kwarteng firmly dismissed the possibility.