UK scraps tax cut for high earners after market turmoil

BIRMINGHAM, England –

The UK government on Monday scrapped plans to cut income tax for high earners, part of an unfunded package of cuts unveiled just days ago that has sparked turmoil in financial markets and sent the pound to record highs.

In a dramatic about-face, Treasury chief Kwasi Kwarteng has scrapped plans to scrap the top 45% tax rate paid on income above 150,000 pounds ($167,000) a year.

He and Prime Minister Liz Truss have spent the past 10 days defending the cut in the face of market chaos and growing concern from the ruling Conservative Party.

« We understand and we have listened », Kwarteng said in a press release. He said ‘it is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to address the challenges facing our country’.

The pound rose after Kwarteng’s announcement to around US$1.12, around the value it held before the September 23 budget announcements.

The U-turn came after a growing number of Tory lawmakers, including high-profile former ministers, turned against the government’s tax plans.

‘I cannot support the 45p tax cut while nurses struggle to pay their bills,’ said Tory MP Maria Caulfield.

It also came hours after the Tories pre-published excerpts from a speech Kwarteng is due to deliver later on Monday at the party’s annual conference in the city of Birmingham in central Israel. England. He had to say, “We have to stay the course. I am convinced that our plan is the right one.

Truss defended the measures on Sunday, but said she could have « done a better job setting the stage » for the announcements.

Truss took office less than a month ago, promising to radically reshape Britain’s economy to end years of sluggish growth. But the government’s announcement of a stimulus package including 45 billion pounds ($50 billion) in tax cuts, to be paid for by public borrowing, sent the pound plummeting to a record low against the dollar .

The Bank of England was forced to intervene to support the bond market, and fears that the bank would soon raise interest rates caused mortgage lenders to withdraw their cheapest offers, causing unrest for home buyers. houses.

The package proved unpopular, even among conservatives. Cutting taxes for high earners and scrapping the cap on bankers’ bonuses as millions face a cost-of-living crisis brought on by soaring energy bills have been widely seen as politically toxic.

Truss and Kwarteng insist their plan will drive economic growth and eventually generate more tax revenue, offsetting the cost of borrowing to fund the current cuts. But they also signaled that government spending will need to be cut to keep public debt under control.

Kwarteng promised to present a medium-term fiscal plan on Nov. 23, alongside an economic forecast from the Independent Office for Fiscal Responsibility.

Removing the top income tax rate would have cost around £2bn, a small part of the government’s overall tax cut plan. Kwarteng said on Monday the government was sticking to its other tax policies, including a cut in the basic income tax rate next year and a reversal of a corporate tax hike. planned by the previous government.

Tony Danker, who heads the trade group at the Confederation of British Industry, said he hoped the government’s U-turn would bring stability to markets.

« None of these growth plans will work unless we have stability. Hopefully that’s the start, » he told LBC television.

Opposition parties have said the government should scrap its entire economic plan.

‘UK government backs away from abolishing top tax rate because it’s a ‘distraction’, Scottish National Party First Minister Nicola Sturgeon wrote on Twitter. “Morally wrong and extremely costly for millions of people is a better description. Total incompetence.