“It is clear that the removal of the 45p rate has distracted from our top priority of addressing the challenges facing the economy,” Finance Minister Quasi Kwaten said in a statement.
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LONDON — The British government on Monday scrapped plans to remove the top income tax rate after a public backlash and major market turmoil.
“It is clear that the removal of the 45p rate has distracted from our top priority of addressing the challenges facing the economy,” Finance Minister Quasi Kwaten said in a statement.
“So I’m announcing that we won’t go ahead and do away with the 45p tax. We get it, we’ve listened.”
Financial markets have reacted poorly to the tax cuts, with the scrapping of the 45% tax on income over £150,000 ($166,770) seen as politically toxic as Britons grapple with the cost of living crisis.
In the days after their announcement, the pound sank to an all-time low, mortgage deals were pulled from the market and UK government bonds began to sell off at a historic pace, leading to calm volatility in the Bank of England embarking on a temporary buying programme.
GBP briefly rises
Sterling rose sharply on Monday morning on reports that the UK government will announce a U-turn. Sterling rose as much as 0.8% against the dollar, but fell to $1.1212 at 7:30am London time after the official announcement. It was back to levels before Kwarteng announced a series of tax cuts in September. twenty three.
With the ruling Conservative Party slumping in opinion polls following the so-called “mini-budget”, the International Monetary Fund has also made rare criticism of the move, and some of its politicians have spoken out against the proposals.
U-turn
Former transport minister Grant Shapps told the BBC on Monday morning that scrapping the top-rated tax cuts was a “smart response” because “at least the people who need them… It’s not sustainable.”
It represented a major and humiliating U-turn for the new prime minister, Liz Truss, who until Sunday insisted she was “absolutely committed” to cutting spending.
She also revealed that the decision was made by Kwarteng and was not announced to her entire cabinet. The Treasury has said the scheme will provide an average of £10,000 a year to the country’s 660,000 high earners.
“Removing the 45% rate has distracted us from our mission to move Britain forward,” Truss said in a tweet on Monday.
“Our focus now is to build a high-growth economy that will fund world-class public services, boost wages and create opportunity across the country.”