LONDON – Facing backlash from Conservative lawmakers following a market backlash, British Prime Minister Liz Truss has removed a key element of his own tax-cut economic agenda. government on Monday, reversing a plan to eliminate the top 45 percent income tax rate on high earners. .
The announcement is a stinging surrender by the government, a day after Ms. Truss announced that she would go ahead with a tax cut plan that has roiled financial markets.
The reversal appears to be designed to prevent a mushroom uprising by Conservative members of Parliament. Some have signaled they will vote against the tax cuts, and some senior party members predict that the government, in power for a month, will fail to pass the measure through the House of Commons. institute.
“We understood and we listened,” Kwasi Kwarteng, prime minister of the Exchequer, posted on Twitter, hours before he spoke at the Conservative Party’s annual conference on Monday.
Mr Kwarteng later told the BBC that cutting the top tax rate had become a “strong distraction” from the rest of the government’s economic package. He said he pitched the idea to change course with Ms Truss on Sunday after seeing the “high concentration” of lawmakers on the measure.
Inflation is on the rise in the UK
This decision will remove a UK public finance cloud. The value of the pound plummeted when Mr Kwarteng unexpectedly announced on September 23 that the government would abolish the 45 per cent income tax rate that applies to people earning more than £150,000, or about $164,000, a year.
Ms. Truss telegraphed another tax cut in the government’s package during her campaign for party leadership last summer. Those include lower-income base rate cuts, home and business taxes.
But the abolition of the top rate was a surprise, and was immediately criticized as a gift to the wealthy at a time when millions of Britons are dealing with a cost of living crisis.
Fears that the government would have to borrow massively to pay for the cuts sent the pound to its lowest level against the dollar since 1985. Other British assets also suffered, leaving the Bank of The British central bank had to intervene in the market last week to raise the price of the pound sterling. government bonds.
Ms Truss and Mr Kwarteng remained defiant in the face of market turmoil, saying tax cuts were central to a supply-side plan to revive the UK economy.
But on Sunday, Ms. Truss acknowledged for the first time that the government had not laid the right basis for the tax cut.
Speaking to BBC journalist Laura Kuenssberg, Ms Truss said the impetus to repeal the highest tax rate came from Mr Kwarteng and it had not been debated by the entire cabinet. That is widely understood as an attempt to move away from the most divisive element of economic planning.
Michael Gove, an influential former minister in the Tory cabinet, criticized the government on Sunday, saying the passage of the unpaid tax cuts was “non-conservative”, meaning they would love significant new loan demand.
The government has pledged to pay tens of billions of pounds to protect people from soaring electricity and gas bills caused by disruptions caused by Russia’s war in Ukraine.
Mr Gove told Ms Kuenssberg: “I think there is an inadequate perception at the highest levels of government about the scale of the change needed. He strongly suggested that he would vote against the measure.
Another former Tory minister, Grant Shapps, said on Sunday that the tax cut was unlikely to pass in the House of Commons and he urged Ms Truss to reverse course. Mr Shapps, who served as transport minister in Boris Johnson’s government, told the BBC the government was messing with the country with “tax cuts for the rich right now, when the priority needs to be the everyday household.”
The announcement quickly lifted the value of the British pound against the dollar and other currencies. It traded at $1,124 to dollars on Monday morning, up about 1 percent.
But it left Ms Truss’s one-month-old government in flux, as Conservative members gathered in Birmingham for their conference. Tax cuts are the prime minister’s special economic proposal; Such a quick reversal of course that was part of her plan would raise doubts about her ability to lead.
It will also raise questions about the future of Mr Kwarteng, the prime minister who has pushed for cutting the top tax rate. He is a close ally of Ms Truss, both of whom have long advocated tax cuts, deregulation and other free-market policies as ways to get Britain out of the growth phase. prolonged economic slowdown.
Speaking to the BBC’s Breakfast program following the announcement, Mr Kwarteng said he had no plans to step down.
