The British government has scrapped plans to cut taxes on the wealthy, a move that caused financial markets to gouge and resulted in record lows for the pound.
Treasury chief Kwasi Kwarteng said he would no longer pursue plans to eliminate the top 45% income tax on earnings above 150,000 pounds, or $167,000 a year.
He said that we get it, and we have listened, and that it is clear that the abolition of the 45 p tax rate has become a distraction from our mission to tackle the challenges facing our country. The reversal came after a number of lawmakers from the governing Conservative Party turned on government tax plans revealed 10 days ago, and just hours after the Conservatives released advance extracts of a speech Kwarteng is scheduled to deliver later on Monday, when he was expected to say, We must stay the course. I am confident that our plan is the right one. Prime Minister Liz Truss defended the plans on Sunday, but admitted she could have done a better job of laying the ground for the announcements.
Truss, who took office last month, promised to reshape Britain's economy and put an end to years of slow growth. The pound dropped to a record low against the dollar after the announcement of a stimulus package on September 23 that includes 45 billion pounds, or $50 billion, in tax cuts that would have been funded by government borrowing.
The Bank of England had to intervene to support the bond market. The bank's interest rates caused mortgage lenders to withdraw their cheapest deals, leading to a lot of problems for homebuyers.
Even the Conservatives were not supportive of the tax cuts, but Truss and Kwarteng believe that their plan will deliver a growing economy and ultimately bring in more tax revenue that will offset the cost of borrowing to support the current cuts. The spending of government will need to be cut, according to the two.
Kwarteng said the government was still following its other tax policies, including a cut in the basic rate of income tax and a reversal of a corporation tax increase planned by the previous government.