By Tony O’Reilly-
The United Kingdom’s government has reversed plans to cut the country’s highest rate of income tax, marking a humiliating U-turn for Prime Minister Liz Truss’s new administration.
The package of measures was aimed at boosting growth by cutting taxes and regulation, funded by vast government borrowing, and included a proposal to scrap the top 45 percent rate of income tax paid on earnings above 150,000 pounds ($167,000) a year.
Announcing the government’s U-turn, Kwarteng said the proposal to slash the top rate – which made up about 2 billion pounds ($2.2bn) out of the overall 45 billion pounds ($50.4bn) tax-cutting plan – had “become a distraction from our overriding mission to tackle the challenges facing our country”.
“We get it, and we have listened,” he said in a statement released hours before he was due to give a keynote speech at the Conservative Party’s annual conference.
The move put Truss and Kwarteng under huge political pressure, within a month of their close political alliance. The UK has had four prime ministers in the last six politically turbulent years.
Truss, a 47-year-old former foreign minister who took office on September 6 , following a leadership contest said she should have done more to “lay the ground” for the tax cut plan.
Several senior Conservative legislators had come out publicly against the policy, highlighting the stakes involved in cutting government spending and hiking borrowing to fund tax cuts for the richest.
“Clearly, there was a decision made that this could not go on. So we have this screeching U-turn … it is extraordinary, for a government to have stuck to its guns for 10 days, on this deeply controversial issue and then on the day that the chancellor was due to give his keynote speech to the annual conference of the Conservative Party … he lands this.”
An array of investors and economists said the reversal was a step in the right direction but cautioned the government needed to go further still. It is not due to release a fiscal statement with the full scale of government borrowing and debt-cutting plans until November 23.