The UK government has dropped plans to cut income taxes on top earners as part of a package of unfunded austerity measures that have fueled financial market turmoil and sent the pound to record lows.
Most important points:
- Chancellor Kwasi Kwarteng says he will now not scrap the top 45 percent income tax rate paid on income over £150,000 ($261,000) a year
- The reverse comes after a backlash from a growing number of ruling Conservative Party politicians
- Prime Minister Liz Truss has said she “could have done a better job laying the groundwork” for the Sept. 23 announcements
In a dramatic turnaround, Chancellor Kwasi Kwarteng has said he will not scrap the top 45 percent income tax rate paid on income over £150,000 ($261,000) a year.
“We get it and we have listened,” he said in a statement.
Mr Kwarteng said it was clear that the abolition of the 45 percent tax rate has become a distraction from their overriding mission to tackle the challenges facing the country.
The backflip came after a growing number of ruling Conservative Party politicians turned against the government’s tax plans announced 10 days ago.
It also came just hours after the Conservatives released extracts from a speech Mr Kwarteng was due to deliver at the party’s annual conference in the city of Birmingham later on Monday, local time.
He should have said, ‘We have to stay on track. I am convinced that our plan is the right one.’
Prime Minister Liz Truss defended the measures on Sunday, but said she could have made the announcements better.
The government’s announcement on Sept. 23 of a stimulus package that includes £45 billion ($78 billion) in tax cuts to be paid through government loans sent the pound plummeting against the dollar.
The Bank of England was forced to step in to support the bond market, and fears that the bank will soon raise interest rates caused mortgage lenders to withdraw their cheapest deals, sparking unrest for home buyers.
The cuts were not popular, even among conservatives.
Cutting taxes on top earners and removing a cap on bankers’ bonuses, while millions face a cost of living crisis caused by rising utility bills, has been widely seen as politically toxic.
Ms. Truss and Mr. Kwarteng insisted that their plan would deliver a growing economy and ultimately increase tax revenues, offsetting the cost of borrowing to fund the current austerity measures.
But they have also indicated that government spending should be cut.
Mr Kwarteng said the government is sticking to its other tax policies, which include cutting the base income tax rate next year and reversing a corporate tax hike planned by the previous government.
The pound rose after Mr Kwarteng’s announcement to around $1.12 – roughly the value it had before the Sept. 23 budget announcement.