Britain plans cuts to lower taxes on the rich

Prime Minister Liz Truss has spent the last 10 days defending the cut amid market chaos and growing concern from the ruling Conservative Party.

LONDON, UK – The UK government on Monday scrapped plans to cut income tax for top earners, part of a package of unfunded cuts unveiled just days ago triggered turbulence on the financial markets and sent the pound to record lows.

In a dramatic about-face, CFO Kwasi Kwarteng abandoned plans to abolish the 45% top rate income tax paid on earnings over £150,000 ($167,000) a year.

He and Prime Minister Liz Truss have spent the last 10 days defending the cut amid market chaos and growing concern from the ruling Conservative Party.

“We understand and we have been listening,” Kwarteng said in a statement. He said: “It is clear that the elimination of the 45p tax rate has become a distraction from our overarching mission of addressing the challenges facing our country.”

The pound rose to around $1.12 after Kwarteng’s announcement — about where it was held prior to the Sept. 23 budget announcements.

The reversal came after a growing number of Conservative lawmakers, including former ministers of great influence, turned on the government’s tax plans.

“I cannot support the 45p tax exemption if nurses are struggling to pay their bills,” Tory MP Maria Caulfield said.

It also came hours after the Conservatives released previews of a speech Kwarteng was due to deliver at the party’s annual conference in the central English city of Birmingham later on Monday. He should have said: “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 laying the groundwork for the announcements.”

Truss took office less than a month ago and vowed to radically transform the UK economy to end years of sluggish growth. But the government’s announcement of a stimulus package that includes £45 billion ($50 billion) in tax cuts to be paid for by government bonds has been broadcast the pound fell to a record low against the dollar.

The Bank of England has been forced to step in to support the bond market and fears the bank will do so soon raise interest rates caused mortgage lenders to withdraw their cheapest offers, causing turmoil among homebuyers.

The package proved unpopular even with conservatives. Lowering taxes on top earners and removing the cap on bankers’ bonuses, while millions with a Cost of living crisis caused by rising energy bills was widely viewed as politically toxic.

Truss and Kwarteng insist their plan will result in a growing economy and eventually generate more tax revenue, offsetting the cost of borrowing to fund the current cuts. But they have also signaled that public spending must be cut to keep government debt under control.

Kwarteng has promised to present a medium-term financial plan on November 23 alongside a medium-term financial plan economic forecast by the independent body for budget responsibility.

The cut in the tax rate for top earners would have cost about £2billion, a small part of the government’s overall tax cut plan. Kwarteng said Monday the government was sticking to its other tax policies, including a property tax rate cut next year and a reversal of a corporate tax hike planned by the previous government.

Tony Danker, who heads the Confederation of British Industry group of companies, said he hoped the government’s turnaround would bring stability to markets.

“None of these growth plans will work if we don’t have stability. Let’s hope this is the beginning,” he told broadcaster LBC.

Opposition parties said the government should abandon its entire economic plan.

“The UK government is reversing the abolition of the top tax rate because it is a ‘distraction,'” Scottish Prime Minister Nicola Sturgeon of the Scottish National Party wrote on Twitter. “Moral wrong and enormously costly to millions is a better description. Total incompetence.” Britain plans cuts to lower taxes on the rich

Laura Coffey

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