British Government abandons plan for top-rate tax cut in major U-turn

Liz Truss has abandoned her plan for a cut in the top 45p rate of tax in the wake of a rebellion from senior figures in the Conservative party including ex-minister Michael Gove. 

Early on Monday morning, Kwarteng announced that he was abandoning the plan to cut taxes for Britain’s top earners in the wake of market chaos last week. 

The ‘mini-budget’ sparked a plunge in the pound to an all-time low of $1.04, and a £65 billion intervention from the Bank of England in the gilts market. 

British growth plan

In a statement, Kwarteng said, “It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country. As a result I’m announcing that we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened. 

“This will allow us to focus on delivering the major parts of our growth package.”

In the wake of the announcement, the pound rose slightly to $1.12, after plunging to historic lows last week. 

Not enough to stabilise Pound?

Traders, analysts and other experts have warned that the measure may not be enough to stabilise the Pound long-term. 

Paul Johnson, Director of the Institute for Fiscal Studies said: “The direct impact of the government’s U-turn on the abolition of the additional 45p rate of income tax is of limited fiscal significance. 

“At a medium-run cost of around £2 billion a year, it represented only a small fraction of the Chancellor’s mini-Budget announcements. His £45 billion package of tax cuts has now become a £43 billion package – a rounding error in the context of the public finances.

“The Chancellor still has a lot of work to do if he is to display a credible commitment to fiscal sustainability.”

Labour finance spokesperson Rachel Reeves said, “They need to reverse their whole economic, discredited trickle down strategy,”