UK Prime Minister Liz Truss abandoned a plan to cut taxes on the richest earnings just 10 days after unveiling it, in an attempt to quell a growing rebellion within her own Conservative Party. Chancellor of the Exchequer Kwasi Kwarteng revealed the decision on Twitter early Monday, saying “we get it, and we have listened.” In a statement accompanying his tweet, he said the decision to eliminate the 45% income tax rate had become a “distraction.”
The statement also represented the first major policy U-turn under British Prime Minister Liz Truss, who took office less than a month earlier, and came after former cabinet ministers Grant Shapps and Michael Gove expressed objections to Kwarteng’s controversial mini-budget on September 23.
Truss and Kwarteng will be hoping that the U-turn will put an end to the days of market turmoil that followed Kwarteng’s Sept. 23 fiscal package. Nonetheless, it’s a major reversal for a government that’s only been in office for a month, especially after the premier and chancellor had spent days defending the measures.
“We get it and we have listened,” Truss stated on Twitter, retweeting finance minister Kwasi Kwarteng’s comments.
Sterling Rebounds
The pound recovered losses to trade 0.8% higher against the dollar. The UK’s tax cut plans sparked financial chaos last week, sending sterling to an all-time low of $1.0327 and gilts spiraling, prompting the Bank of England to intervene. Prime Minister Liz Truss reiterated the government’s policies as recently as Sunday.
Kwarteng recommended eliminating the 45-percentage-point tax on earnings of more than £150,000 ($167,400) each year, sending the pound to a record low against the dollar and bond yields skyrocketing on worries of a borrowing binge.
In an effort to mitigate the effects of Russia’s invasion of Ukraine, the budget included a pricey freeze on energy costs for families and businesses.
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