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In a major shift, the UK scraps the tax cut for the wealthy that sparked market turmoil

Annual Conference of the Conservative Party of Great Britain in Birmingham
British Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng at the Conservative Party annual conference in Birmingham, England, on Oct. 2, 2019, 2022.


The new British government has fallen plans to reduce income tax for top earnerspart of a package of unfunded cuts that caused turmoil in the financial markets and sent the pound to record lows.

In a dramatic change of course, Treasury chief Kwasi Kwarteng said Monday that he will not scrap the top 45% rate of income tax paid on earnings of more than 150,000 pounds ($167,000) a year.

“We understand and have heard it,” he said in a statement, adding that “it is clear that the abolition of the 45 pence tax rate has become a distraction from our primary mission of addressing the challenges facing our country.”

The U-turn came after a growing number of lawmakers from the ruling Conservative Party rejected the government’s fiscal plans announced 10 days ago.

It also came hours after the Conservatives released advance excerpts from a speech Kwarteng will give later Monday at the party’s annual conference in the central English city of Birmingham. He was to say, “We must stay the course. I trust our plan is the correct one.”

Prime Minister Liz Truss defended the measures on Sunday but said she could have “done a better job of laying the groundwork” for the announcements.

Kwarteng told the BBC that the focus on the top tax rate had become a “massive distraction” but said he had not considered resigning, according to Agence France-Presse.

“I’m very pleased that we decided not to proceed with it because it was drowning out elements of an excellent plan,” he said.

In a tweet Monday morning, Truss also said the tax rate had “become a distraction from our mission to get Britain moving.”

Truss took office less than a month ago and has promised to radically reshape the British economy to end years of sluggish growth. But the government’s September 23 announcement of a stimulus package that includes 45 billion pounds ($50 billion) in tax cuts, to be paid for with government loans, sent the pound plunging to a record low against to the dollar.

The Bank of England was forced to intervene to prop up the bond market, and fears the bank would soon raise interest rates prompted mortgage lenders to withdraw their cheapest offers, throwing homebuyers into confusion.

The cuts were unpopular, even among Conservatives. Cutting taxes for top earners and removing a cap on bankers’ bonuses while millions face a cost-of-living crisis fueled by rising energy bills was seen as politically toxic.

Truss and Kwarteng insisted their plan would deliver a growing economy and eventually bring in more tax revenue, offsetting the cost of borrowing to finance the cuts. But they also pointed out that it would be necessary to cut public spending.

Kwarteng said the government was sticking to its other fiscal policies, including a cut next year in the base income tax rate and the reversal of a corporate tax increase planned by the previous government.

The pound rose after Kwarteng’s announcement to around $1.12, roughly what it was before the September 23 budget announcements.


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