BIRMINGHAM, England (AP) – The British government on Monday dropped plans to cut income tax on higher earners, as part of a package of unfunded cuts unveiled just days ago that sparked turmoil in financial markets. The pound was sent to record lows.
In a dramatic turnaround, Treasury chief Kwasi Quarting has abandoned plans to scrap the top 45% of income tax paid on profits over £150,000 ($167,000) a year, a policy that has drawn near-universal opposition. The pound rose after the government shift, trading at $1.13 – just above the value it held before the government’s disastrous budget announcement on September 23.
But Kwarteng said the government would go ahead with the rest of the stimulus package to cut taxes. Kwarteng and Prime Minister Liz Truss They have spent the past 10 days defending the plan in the face of market chaos and growing anxiety among the ruling Conservative Party.
In a speech to the party’s annual conference, Courting admitted that the plan “caused quite a bit of disruption”.
“I get it. We are listening and we have listened, and now I want to focus on delivering the key parts of our growth package,” he said, trying to draw a line under the 10 days of turmoil.
“We need to move on. No more distractions. We have a plan and we need to move forward and implement it.”
The shift came after a growing number of conservative lawmakers, including influential former ministers, turned on the government’s tax plans..
“I can’t support the abolition of the 45 pence tax when nurses are struggling to pay their bills,” said Conservative lawmaker Maria Caulfield.
The backlash has cast a shadow over the Conservative conference in Birmingham, central England, with many delegates expressing fears that the party, in power since 2010, is headed for defeat at the upcoming election. Not due until 2024, but the opposition Labor Party has led significantly in the polls.
Truss defended the economic plan on Sunday but said she could have done a “better job of preparing the ground” for the ads.
She also said that the decision to abolish the highest tax rate was taken by Kwarteng alone. On Monday, a spokesman for Truss said the prime minister still had confidence in the head of the Treasury she was facing.
Truss took office less than a month ago, promising to fundamentally reshape the British economy to end years of sluggish growth. But the government’s announcement of a stimulus package that includes tax cuts worth 45 billion pounds ($50 billion), to be paid back by government borrowing, sent the pound to a record low against the dollar..
The Bank of England had to intervene to support the bond market, fears that the Bank will raise interest rates soon It caused mortgage lenders to withdraw their cheapest deals, causing homebuyer disruption.
The package proved unpopular, even among conservatives. Reducing taxes on high-income earners and eliminating maximum bonuses for bankers as millions face a cost-of-living crisis driven by high energy bills It was widely seen as politically toxic.
Truss and Quarting insist their plan will bring a growing economy and eventually generate more tax revenue, offsetting the cost of borrowing to fund the current cuts. But they also noted the need to cut public spending to keep government debt under control.
Monday’s change of direction has lifted some political pressure on the government from within the Conservative Party, but it still faces skepticism from markets and economists and growing public opposition to the mounting pressure on the cost of living.
Unless Kwarteng also changes some of his other much larger tax declarations, he will have no choice but to consider cutting public spending: on Social Security, investment projects or public services, said Paul Johnson, director of the Institute for Fiscal Studies a think-tank.
Kwarteng promised to draw up a medium-term financial plan on November 23, along with economic forecasts From the Independent Office of Budget Responsibility.
Abolishing the tax rate for high-income earners could have cost about two billion pounds, a small share of the government’s overall plan to cut taxes. Kwarteng said Monday that the government is committed to its other tax policies, including a cut next year in the base rate of income tax and the abolition of a corporate tax increase planned by the previous government.
“The growth plan we put in place 10 days ago will ensure that we focus relentlessly on economic growth,” Kwarteng said. Because we have to face the fact that our economy has not grown enough for a long time.
“The path ahead has been slow, managed decline. But I refuse to accept that Britain is somehow destined to return to the middle league or that the tax burden reaching its highest level in 70 years is somehow inevitable. It is neither It should be.”
Tony Dunker, who heads the Confederation of British Industry business group, said he hoped the government’s shift would stabilize markets.
None of this growth plan will work unless we have stability. Let’s hope this is the beginning,” he told LBC.
Opposition parties said the government should cancel its entire economic plan.
“This is an economic crisis made in Downing Street and paid for by workers,” said Rachel Reeves, a spokeswoman for labor economics. “The Conservative Party has damaged the UK’s reputation on the world stage and left us all worse off.”