‘Had become a distraction,’ UK reverses proposed 45% top income tax rate

According to the BBC, UK Chancellor the Exchequer Kwasi Kwarteng has confirmed the news in a statement, “he said the proposals, announced just 10 days ago in the mini-budget had “become a distraction”.

He added, “Along with PM, I decided best course was not to proceed with abolishing 45p rate. We are focussed on getting away from a high tax route. 

The plan to scrap the 45p rate, paid by people earning over £150,000 a year, had been criticised as unfair at time of rising living costs.

On Sunday, in an interview to the UK state broadcaster, BBC, Liz was asked, “Are you absolutely committed to abolishing the 45p tax rate for the wealthiest people in the country?” And Truss replied,  “Yes. And it is part, Laura, it is part of an overall package of making our tax system simpler and lower.”

The move, seen as a big climbdown, would be a major reversal for Truss’s government, which has been in office for just a month.

Her remarks came as a big retreat from her initial commitment to not relent. Truss had said she’s determined to follow through with her plans for massive tax cuts because she believed they will make the country more successful, according to an interview published in the Telegraph.

But clearly, she didn’t get any support. Neither from her party members nor from the markets. The u-turn comes after after it became clear on the first day of the Conservative party conference that Truss would face a huge rebellion if she tried to force her MPs to vote for it. Senior Tory Michael Gove had suggested he would not vote for Liz Truss’s Budget when it comes to Parliament, saying “I don’t believe it’s right.” He went on to call it, “a display of the wrong values”.

He also argued that using borrowed money to fund tax cuts was “not Conservative”. According to the BBC, a dozen Conservative MPs have now gone public with concerns about the mini-budget but privately many more are worried. At the very least, they want the 45p tax cut dropped. Ex-cabinet minister Grant Shapps had even warned the prime minister would lose a Commons vote on the proposal.

Last week the pound has slid to an all-time low of 1.0350 after the UK government’s tax-cut plan fuelled fears of worsening public finances and quicker inflation. While the Bank of England’s bond purchases on Wednesday helped the currency pull out of its nosedive.

Truss has taken some of the blame for the market meltdown, saying the government should have laid the ground better for the package. The International Monetary Fund last week said the tax cuts would probably worsen inequality and undermine the BoE’s fight against inflation.

Regardless, Kwarteng looks set to double down, promising what he called a new economic deal for the country. “What Britain needs is economic growth. And a government wholly committed to economic growth,” he will say.

(With agency inputs)