Abolition plans to abolish top 45% income tax after uprising in Conservative ranks and Bank of England intervention in economy
The UK government was forced on Monday to reverse the tax cut announced just 10 days ago by the new Chancellor of the Exchequer, Kwasi Kwarteng. It does so after a turbulent week in which there has been an uprising in the ranks of the Conservative Party, fueled by a collapse in polls, and the Bank of England has been forced to intervene in the economy over the mistrust of the markets.
“Clearly, the abolition of the 45% tax rate has become a distraction from our mission to address our country’s difficulties,” Kwarteng said in a statement posted on Twitter earlier in the day. That’s why I’m announcing that we’re not going through with it. We got it. We have listened,” he said.
One of the key measures announced by the Executive led by Liz Truss was to lower the top tax rate from 45 to 40% in income tax. It is a marginal tax levied on an income of £150,000 (approximately EUR 172,000) or more. The move was announced 10 days ago by Kwarteng as part of a “mini-budget” (in its own words), which also included promised reductions in corporate tax, national insurance and the basic income tax rate.
In total, the plan announced tax cuts worth €50,000 million, the largest in the past 50 years. It also mobilized another 150,000 million in direct aid to households and businesses to pay for gas and electricity bills. According to Kwarteng in the House of Representatives, the way to finance all these measures was to resort to a debt increase of almost 7%.
The response was immediate. The value of the British pound plummeted. The UK economy, like the rest of Europe, has been hit hard by inflation, reaching 9.9%, and is facing an accelerated rise in interest rates, which has caused investor doubts and the rise in mortgage prices. The Bank of England was forced to inject 65,000 million through the purchase of long-term bonds to guarantee stability. In addition, the measure had been heavily criticized for citing a tax cut for the highest earners at a time when the cost of living was rising.
At the same time, internal unrest grew in the ranks of the Conservative Party. The ‘tories’ are celebrating their annual conference in Birmingham from this Sunday, and it is in this scenario where the Executive has been forced to announce that it is withdrawing from one of the key measures envisaged in the mini-budget. Conservatives have plummeted in the polls and Labor’s lead has tripled since the fall of Boris Johnson. At the moment, Keir Starmer’s men are 33 points ahead of the Tory game.
Source: La Verdad
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